Tag Archives: scam

Wachovia Sued for Millions in 1031 Exchange Fraud

Wachovia Corp., the troubled banking and financial services company that was the subject of a bidding war between Citigroup Inc. and Wells Fargo & Co., the target of a $60 billion lawsuit from Citigroup, and that has also been linked to money laundering by Mexican and Columbian drug cartels, has now been sued by the victims of  a fraudulent scheme to steal millions of dollars in client funds held by The 1031 Tax Group LLP (1031TG), a 1031 exchange qualified intermediary scam operated by Ed Okun.

Okun was indicted, along with Lara Coleman, on July 10, 2008, by a federal grand jury in Richmond, Va., and charged with conspiracy to commit mail and wire fraud, conspiracy to commit money laundering, wire fraud, mail fraud, money laundering, bulk cash smuggling and forfeiture. Okun is also charged with one count of making false statements.

The new lawsuit by the 1031TG Trustee alleges that Wachovia aided and abetted breaches of fiduciary duty by Edward Okun and Lara Coleman against the 1031 Tax Group Debtors, and seeks to recover more than $140 million of damages arising from such actions.

According to a lawsuit filed in the Southern District of New York on October 2, 2008, by the Trustee for the bankrupt tax-deferral company, “Wachovia was entwined in all aspects of the 1031 debtors’ operations, Okun’s personal finances and Okun’s other businesses” and assisted in the fraud by transferring $240 million to “inappropriate” accounts before the tax firm collapsed and Okun was arrested.

The lawsuit seeks recovery of more than $43 million of conveyances allegedly made to Wachovia in the form of cash and mortgage liens, and the imposition of equitable liens and constructive trusts on several properties in which Wachovia continues to hold liens.

The complaint also asserts that Wachovia housed more than 250 bank accounts for the 1031 Tax Group Debtors as well as other Okun Entities; provided several personal loans to Okun; and made commercial loans to Okun-related entities, such as IPofA affiliates. 

The lawsuit further alleges that during the course of this relationship, Wachovia learned that Okun and others were misappropriating funds of the 1031 Tax Group Debtors, but did nothing to stop the misappropriations, and in fact took steps that furthered the misconduct.

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A Simple Way to Avoid Getting Scammed

When we read CNN’s story about the FBI’s investigation of a massive Ponzi scheme operated out of the University of Miami, what struck us as most instructive was the statement from one of the scam’s victims that he had been promised an 18 percent return on his short-term investment.

The victim, Victor Gonzalez, said he put more than $3.5 million into the scheme.

Here is a simple rule to follow if you want to avoid being scammed:

Do not believe someone who promises you an 18 percent return on a short term investment.

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.

 

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.

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.”

 

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.

 

$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.