Tag Archives: real estate scams

Are Our Economic Problems Just in Our Minds? John McCain’s Chief Economic Advisor Thinks So

Are the nation’s economic problems — the financial crisis, the mortgage meltdown, the tidal wave of foreclosures, soaring gas prices, increasing job losses, and a tumbling dollar — only in our minds?

It appears that Phil Gramm, John McCain’s chief economic advisor and co-chair of his presidential campaign, thinks so.

He also thinks that those of us who are seriously troubled by the state of the economy are “whiners.”

In an interview in yesterday’s Washington Times, Gramm said that “this is a mental recession. We may have a recession; we haven’t had one yet.”

Gramm says that Americans have “become a nation of whiners.” 

Americans, according to Gramm, are constantly “complaining about a loss of competitiveness, America in decline.”

“You just hear this constant whining,” he said.  “Misery sells newspapers,” Gramm said.  “Thank God the economy is not as bad as you read in the newspaper every day.”

What also sells newspapers are bone-head comments from key advisors to presidential campaigns.

We said last month that Gramm was on thin ice in the McCain campaign because of his ties to the mortgage meltdown and financial crisis

As a U.S. Senator from Texas, Gramm spearheaded sweeping changes in federal banking law, including the Gramm-Leach-Bliley Act in 1999, which repealed previous rules separating banking, insurance and brokerage activities, and which some analysts blame for creating the legal framework for the current mortgage meltdown and credit crisis.  For that effort, Gramm has been called “the father of the mortgage meltdown and financial crisis.”

In addition, Gramm is currently vice chairman of UBS, the giant Swiss bank that has been a major player in the U.S. subprime mortgage crisis.  While advising the McCain campaign, Gramm was paid by UBS to lobby Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.

Gramm’s leadership role in UBS — whose stock has fallen 70 percent from last year — also raises questions about his economic, and not just his political, judgment. 

As a recent article in Slate.com observes, “UBS’s investment banking unit made disastrous forays into subprime lending. Last December, having already announced a third-quarter loss, UBS raised about $13 billion to replenish its balance sheets, mostly from the Government of Singapore Investment Corp.  In the fourth quarter of 2007 and the first quarter of 2008, it racked up Mont Blanc-sized losses on subprime debt of nearly $32 billion. In May, it sold about $15 billion worth of mortgage-related assets to the investment firm BlackRock — but only after it agreed to finance most of the purchase price. In June, UBS raised another $15.5 billion in a rights offering. The credit losses — some $38 billion so far, according to UBS — caused the bank to replace its chairman and install new leadership at its investment bank.”

In addition, Massachusetts has charged UBS with defrauding customers who had purchased auction-rate securities. UBS is accused of “selling retail brokerage customers products that turned out to be profitable for the bank’s investment banking unit but caused the customers to suffer significant losses.”

UBS is also the subject of an ongoing federal investigation, in which Bradley Birkenfeld, an American UBS private banker who was busted on tax evasion charges, has plead guilty and is cooperating. 

UBS has also recently paid millions of dollars to settle a lawsuit with the victims of a 1031 exchange scam.  UBS was one of several defendants who were alleged to have participated with Donald Kay McGahn and and others in a scheme to steal the money that had been entrusted to them to facilitate tax deferred 1031 exchanges.

And most recently, the Financial Times, which called UBS “Europe’s biggest casualty of the US subprime crisis,” reported that UBS’s write-downs could total another $7.5 billion.  UBS’s stock fell 7 percent in trading on Monday.

With that resume, we think it would be best for everyone, not least John McCain, if Phil Gramm was no longer introduced to voters as “John McCain’s chief economic advisor.”

UPDATE:

As of July 18, Gramm has resigned as co-chair of McCain;s presidential campaign.

Advertisements

Greed, Power and Sex: Con-Artist with “Vatican” Connections Indicted for Scamming the Rich and Famous

Here’s a story about greed, power and sex that’s a mixture of The Da Vinci Code, Bonfire of the Vanities, Moliere’s Tartuffe and Herman Melville’s The Confidence Man

It is about a scam and a scammer.

We’ve written about scams and how to avoid them

We don’t like scammers, especially those who prey on the desperate and the vulnerable, such as people facing foreclosure. 

But sometimes a scammer is so outrageous, so inventive, so over-the-top, and his victims so well-heeled and incredulous, that we have to admit at least an ambivalent admiration.

One such scammer is Raffaello Follieri, one of the very few scammers we’ve seen who deserves the name con-artist.

Follieri’s story reads more like a novel than a crime report.

For months, Americans who were in-the-know knew Follieri as a suave and sophisticated Italian businessman, real estate mogul, socialite, philanthropist, and Vatican representative.

He was none of these, except Italian.

Using charm, good looks, unbelievable gall, and a network of gullible and greedy New York socialites, Washington insiders and Hollywood A-list connections, Follieri moved easily in exclusive circles of money, power, and glamor. He lived in a $40,000 a month Fifth Avenue apartment and travelled the world, going to parties, conferring with the Pope (he said), and receiving awards for his generosity. 

Among those who fell under Follieri’s spell was actress Anne Hathaway.

Another was billionaire entrepreneur Ron Burkle, Burkle’s investment business Yucaipa Companies LLC, as well as Burkle’s friend, former President Bill Clinton.

Then the scam collapsed.

According to the New York Times,  “Raffaello Follieri, from San Giovanni Rotondo on the spur of Italy’s boot, is alive and kicking in his $40,000-a-month duplex on Fifth Avenue. Age 29, he used empty claims of church ties to befriend Douglas Band, a top aide to Bill Clinton. Band then smoothed the way to Clinton’s moneyed entourage, including the California billionaire Ronald Burkle.”

“Mr. Follieri received an onstage thanks from Mr. Clinton after pledging $50 million to the Clinton Global Initiative. The money has not been paid.”

“Mr. Follieri’s business cachet — his link to the Catholic Church — was contrived, the government said. It consisted of an administrative employee at the Vatican whom he paid.”

“Mr. Follieri also hired a relative of a former Vatican official as well as his own father, claiming that his father had a special relationship with the Vatican. In an apparent effort to build ostensible ties to the church, Mr. Follieri also met with clergy and traveled with a monsignor.”

In another story, the Times further explains that “Attractive and charming, [Follieri] rapidly moved into the world of billionaires and political figures. His entree was helped when he met and befriended Douglas Band, a top aide to Bill Clinton who brought Mr. Follieri into contact with the former president and Mr. Burkle.”

“That relationship birthed the unhappy union of Burkle’s Yucaipa investment operation, of which Clinton is a senior adviser, and the Follieri Group in a venture to acquire Catholic Church property Follieri said he’d get on the cheap.”

“From mid-2005, Burkle plowed $55.6 million into this enterprise, only to conclude Follieri was devoting a chunk of it to good living. A suit filed by Yucaipa in Delaware in May contends Follieri has been ‘systematically misappropriating the assets’ to indulge in ‘massive charges for five-star lodging’, ‘dog care’ and ‘inappropriate jet travel’ for himself and ‘his actress girlfriend’.  That’s Anne Hathaway, of The Devil Wears Prada.”

Burkle’s lawsuit against Follieri was dismissed after Follieri agreed to pay back more than $1.3 million.

Then, last week, Follieri was arrested in New York and charged with 12 counts of fraud and money laundering.  He could get life in prison.

The charges against Follieri include:

  • Six counts of wire fraud and each count carries a maximum sentence of 20 years in prison.
  • Five counts of money laundering with each count  carrying a maximum sentence of 20 years in jail.
  • One count of conspiracy to commit wire fraud, which carries a maximum penalty of 5 years behind bars.

According to the press release from the U.S. Attorney’s Office, “From June 2005 through June 2007, FOLLIERI ran a fraudulent real estate investment scheme, falsely claiming that he had close connections with the Vatican that enabled him to purchase Catholic Church properties in the United States at a substantial discount. FOLLIERI claimed that the Vatican formally appointed him to manage its financial affairs and that he met with the Pope in person when he visited Rome, Italy.”

“In reality, FOLLIERI’s connections consisted of an administrative employee at the Vatican who was paid by FOLLIERI; FOLLIERI’s hiring of a relative of a former Vatican official; meetings with clergy, FOLLIERI’s travels with monsignors; and a reporter for a news publication in Italy. None of these connections entitled FOLLIERI to purchase Church real estate at below-market rates.”

“Based on his fraudulent representations about his ties to the Vatican, FOLLIERI was able to access and misappropriate hundreds of thousands of dollars in investor money to live a luxurious lifestyle, including expensive restaurants and clothes;dog walking services; an opulent apartment in Manhattan that leased for approximately $37,000 per month, overlooked Rockefeller Center, and had views of Central Park; medical expenses for his girlfriend at the time and his parents,including a “house call” by FOLLIERI’s physician which cost privately chartered airplanes to various locations around the world.”

“In addition, FOLLIERI stole money from an investor by falsely claiming, among other things, that FOLLIERI needed money for an office in Italy that did not exist, and claimed that he spent over $800,000 for “engineering reports” relating to real estate that did not reflect engineering work and were almost worthless. FOLLIERI caused hundreds of thousands of dollars in fraudulently obtained proceeds to be wired to a bank account in Monaco that he controlled in order to hide and conceal the source and control of the funds. From late 2006 through early 2007,FOLLIERI’s scheme started to unravel, and FOLLIERI’s principal investor cut its ties to FOLLIERI and fired him.”

The Times reports that “Judge Henry B. Pitman set bail at $21 million, to be secured by $16 million in cash and property and guaranteed by five financially responsible persons. Mr. Follieri had to surrender all travel documents and was ordered confined to his home in Manhattan with the exception of legal, religious and medical needs. Any trips must be made with an electronic-monitoring device.”

And Anne Hathaway has gotten smart and is no longer taking his phone calls.

 

Don’t Get Scammed! — 10 Tips to Avoid Getting Ripped Off by Real Estate and Foreclosure Investment Scams

There are a lot of real estate scams out there and many of them are now offering the bait of making easy money in the foreclosure market.

Scammers like to run with the hot trend — and right now the hot trend in real estate is foreclosures and distressed property.

Of course, there is money to be made by investing in distressed and foreclosed real estate.

But as with any other kind of investing, making money in distressed property and foreclosures requires significant expertise and experience and adequate capitalization. 

Before you trust your money to a stranger who tells you he has a sure-fire way to make lots of cash by investing in the hot, once-in-a-lifetime foreclosure and distressed property market, make sure that he has the expertise and experience and the capital (not just yours!) to back up his claims.

Here are 10 tips to avoid being taken in by scammers who promise you quick and easy returns on your real estate investment:

1. Be very skeptical and ask lots of questions. 

2. Get the names of the people who will be running the investment fund.  In particular, get the names of the people who will be making the investment decisions.  Demand that they tell you their business and investment track record and that they provide you with documentation of their claims. 

3. Check their qualifications.  Make sure that they are licensed securities or real estate professionals and not just telemarketers. 

4. Research all the names you get.  Use the Internet.  Do a google search for the investment fund and for anyone involved in the fund or business.  Search for their names and the name of the investment fund on scam.com, the Securities Fraud Search Engine, and  other community web sites and bulletin boards, as well as the Better Business Bureau.  Also check their names with your state Attorney General and the Securities and Exchange Commission.  Carefully read the online material on telemarketing fraud put out by the U.S. Department of Justice. 

5. Find out whether the people raising the money for the investment fund are licensed securities brokers.  If not, don’t invest.  You can check their broker status here.

6. Before you invest, get the advice of people you trust.  Ask your attorney, your real estate broker, your financial advisor, and your adult children what they think about the investment.  On the other hand, avoid pressure from relatives and friends to invest in “can’t miss” schemes.

7. Get all promises or claims in writing and save copies of the paperwork. Verbal agreements don’t mean anything. Demand documents and then review them carefully.  Ask your attorney, your real estate broker, your financial advisor, and your adult children to review them as well.  Even when you get promises in writing, remain skeptical, especially regarding revenue projections.  At best, these projections are guesses; at worst, they’re outright lies.  Be particularly skeptical about projections in a business plan.  Remember that a business plan is not a legal document — you can put anything you want in a business plan and scammers always do.

8. Take your time before deciding whether to invest.  Scammers use lots of tactics to pressure you to make a decision.  Don’t let anyone rush you into an investment.  If they tell you, “only a few lucky investors can get in, so you must act right away,” it is almost certainly a scam.

9. Demand to know how much of your investment, or the total fund raise, is actually going to purchase property and how much is going to pay the people who are raising the money.  Don’t trust any investment where more than 10-15 percent of the total raise is going into the pockets of the fund-raisers. 

10. Live by the rule: If something sounds too good to be true, it probably isn’t.  If someone tells you that there is a “guaranteed return on your investment,”  it is almost certain that you should invest your money somewhere else.  Scammers play on greed and fear.  Deals that promise exceptional returns — and deals that must be done now — are the hallmarks of a scam.

 

Who is Elham Assadi Jouzani?

Last March, we wrote about the federal indictment of 19 people for mortgage fraud-related offenses under what the government called “Operation Homewrecker.”

The indictment alleged that a scam operated by Charles Head, 33, of Los Angeles, California, along with 18 others under his direction, targeted homeowners in dire financial straits, and fraudulently obtained title to over 100 homes and stole millions of dollars through fraudulently obtained loans and mortgages.

Among the alleged conspirators was Elham Assadi, aka Elham Assadi Jouzani, aka Ely Assadi, 30, of Irvine, California.

In the past two weeks, many of our readers have found this blog by searching for the name Elham Assadi Jouzani (and, somewhat less frequently, by searching for Ely Assadi and Elham Assadi).

Who is Elham Assadi Jouzani?

Jouzani is alleged by federal prosecutors to have been part of a “foreclosure rescue” scam that netted approximately $6.7 million in fraudulently obtained funds taken from 47 homeowners, nearly all located in California.

The allegations are that from January 1, 2004 to March 14, 2006, the defendants contacted desperate homeowners, offering two “options” allowing them to avoid foreclosure and obtain thousands of dollars up-front to help pay mounting bills. If the homeowner could not qualify for the “ first option,” which virtually none could, they would be offered the “second option.” An “investor” would be added to the title of the home, to whom the homeowner would make a “rental” payment of an amount allegedly less than their mortgage payment, thereby allowing the homeowner to repair their credit by having the mortgage payments made in a timely fashion.

All of this was a scam.

The defendants recruited straw buyers as the “investors” who would then replace the homeowners on the titles of the properties without the homeowners’ knowledge. Once the straw buyer had title to the home, the defendants immediately applied for a mortgage to extract the maximum available equity from the home. The defendants would then share the proceeds of the ill-gotten equity and “rent” being paid by the victim homeowner.

When the defendants ultimately would sell the home, stop making the mortgage payment, and/or pursue an eviction proceeding, the victim homeowner was left without their home, equity, or credit.

These facts explain the interest in Operation Homewrecker.

But these facts don’t explain the recent particular interest in Jouzani.

We’ve searched the Internet ourselves, and we can’t find any reference to Elham Assadi, Ely Assadi, or Elham Assadi Jouzani outside of this case.

Nor can we find anything in the news that explains the current interest in Jouzani as compared to the other Operation Homewrecker conspirators.

If you’ve come to this blog by searching for Jouzani, please tell us why there is so much special interest in this particular Homewrecker.

And why the interest at this time?

We’d love to provide more reporting on Jouzani, so if you know something, please tell us so that we can pass it on to our readers.

 

One of Charles Head’s “Operation Homewrecker” Scammers Still Listed as Broker on Reverse Mortgage Website

Keith Brotemarkle, one of the people indicted with Charles Head in an alleged “equity stripping” scheme called Operation Homewrecker, was also involved in a reverse mortgage company called Reverse Mortgage Resources.

The company’s website “invites qualified brokers to become Approved Reverse Mortgage Advisors” with Reverse Mortgage Resources.  It asks potential affiliated brokers ” Who did you speak with at Reverse Mortgage Resources?” 

One of the brokers listed as being at Reverse Mortgage Resources is Keith Brotemarkle.

Brotemarkle was allegedly a participant in Charles Head’s “equity stripping” scheme that netted approximately $5.9 million in stolen equity from 68 homeowners in states across the nation. Targeting distressed homeowners and defrauding mortgage lenders through the use of straw buyers, Head would receive approximately 97 percent of the stolen equity, while the other defendants received either the remaining 3 percent of equity or a salary from the fraudulently-obtained funding. The defendants used referrals from mortgage brokers to identify and solicit new victim homeowners, and also sent “blast faxes” to mortgage brokers throughout the country and mass emails to potential victims. Through misrepresentations and omissions, desperate homeowners would be offered what appeared to be their last best chance to save their homes. Victims were left without their homes, equity, or credit.

The FBI has recently announced that it has begun an investigation to the misuse of reverse mortgages.  Reverse mortgages release the equity in a property to the homeowner in one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves the home.  In the U.S., reverse mortgages are available for people 62 years old or older. Reverse mortgages are typically used to finance retirement or pay unexpected medical bills.  While reverse mortgages can make sense for seniors, the FBI is concerned about possible abusive sales practices that prey on seniors, such as aggressive and untruthful marketing and excessive fees.

Reverse Mortgage Resources is run by mortgage broker Don Marginson.  Its website states that it is located in Ranch Bernardo, California, and that it is “expanding again with offices to cover the Southeast and Northeast United States.”

We have no reason to believe that Reverse Mortgage Resources is not legitimate, and we would not want to assume that it is illegitimate simply because of its association with Brotemarkle.

But we would suggest that they remove Brotemarkle’s name from its website.

 

 

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.

 

 

$23 Million Settlement Reached with UBS in 1031 Exchange Scam Lawsuit

The plaintiffs in a class action lawsuit who allege they lost over $80 million that they had placed with Southwest Exchange, Inc. (SWX) and several other 1031 exchange accommodators or qualified intermediaries (QIs) have reached a settlement with one of the defendants, UBS Financial Services, Inc. (UBS).

You can read our earlier post about the lawsuit here.

Under the terms of the settlement, the plaintiffs will receive $23 million from UBS.

The settlement was approved by the court on March 28, 2008, and a notice was sent to the class action plaintiffs on April 2, 2008.

You can read the settlement notice sent by the law firm of Hollister & Brace here.

UBS is one of several defendants who are alleged to have participated with Donald Kay McGahn and and others in a scheme to steal the money that had been entrusted to them to facilitate tax deferred 1031 exchanges.

In addition to UBS, the plaintiffs claim that other major financial firms, including Citigroup and Salomon Smith Barney, participated in the scheme.

A criminal investigation continues.

UPDATE:

For more on UBS, click here.