Countrywide Closer to Indictment — And Still Making Zero Down-Payment Loans

Countrywide Home Loans is one step closer to possible federal criminal indictment following a bankruptcy judge’s decision to allow the Justice Department wide authority to investigate whether the largest U.S. mortage lender has serially cheated bankrupt borrowers in bankruptcy cases.

Judge Thomas P. Agresti of the U.S. Bankruptcy Court for the Western District of Pennsylvania said U.S. Trustee Kelly Beaudin Stapleton has the power to subpoena documents and question Countrywide officials under oath about questionable actions the lender allegedly took in borrower-bankruptcy cases.

Countrywide had argued that the U.S. trustee had limited authority to investigate specific issues in particular cases or proceedings and could not seek discovery related to general policies and procedures Countrywide followed in its business affairs.

The U.S. Trustee contends that Countrywide filed inaccurate proofs of claim, filed unwarranted motions for relief from the bankruptcy stay, inaccurately accounted for funds, and made unfounded payment demands to debtors after discharge.

According to Judge Agresti’s opinion in In re Countrywide Home Loans Inc., No. 07-00204, 2008 WL 868041 (Bankr. W.D. Pa. Apr. 1, 2008), similar allegations have been raised against Countrywide in at least 293 separate borrower-bankruptcy cases just in the Western District of Pennsylvania.

In addition, Countrywide has been accused of similar abuses against borrowers across the country, and faces additional trustee lawsuits in Georgia, Ohio and Florida.

The judge’s decision in Pennsylvania does not bind other bankruptcy courts, but it could influence judges in other courts as the Justice Department pursues alleged abuses by Countrywide in other states.

In rejecting Countrywide’s claim that allowing the probe would cause chaos in the mortgage industry, the judge wrote that “The U.S. Trustee has made a showing of a common thread of potential wrongdoing.”

“The apparent point of Countrywide’s argument is that recognizing the authority of the U.S. Trustee to conduct these examinations could have the unintended consequence of leading to an unregulated ‘free-for-all,”’ he continued. “The court find’s Countrywide’s argument … to be without merit.”

In 2006 Countrywide financed 20% of all mortgages in the United States.

Countrywide itself narrowly avoided bankruptcy due to its exposure to subprime mortgages when Bank of America agreed to purchase the home mortgage giant in January for $4.2 billion.

Countrywide is still in the business of making home loans, and according to a recent article in Slate.com, it is still making zero down-payment loans.

In some instances, according to the article, Countrywide is foreclosing on properties, then offering new buyers zero down-payment mortgages plus their own free appraisal of the foreclosed property.

According to the Countrywide Foreclosure Blog, Countrywide’s own website currently lists 14,541 bank-owned (REO) properties for sale with a combined asking price of $2,984,273,174.  The largest number of these properties, by far, are in California, with 4,493 properties with a combined asking price of $1,294,972,540.

UPDATE:

For an update on the federal judge’s decision to allow a multi-million dollar shareholders’ lawsuit against Angelo R. Mozilo and other Countrywide executives to proceed, click here.

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.

Mortgage Fraud Conspirators Get Their Day in Court — And You Can See a Preview on YouTube

Two conspirators in a Florida mortgage scam that prosecutors described as an “equity stripping” mortgage fraud scheme that included identity theft and resulted in more than $6 million in fraudulent loans had their day in federal court in Tampa last week.

Federal prosecutors had claimed that the conspirators fraudulently submitted mortgage applications under false pretenses, obtaining and disbursing the proceeds of those loans to bank accounts in their control.

Last Thursday, mortgage broker Luis Uribe pleaded guilty to one count of wire fraud and one count of aggravated identity theft. He could face as much as 30 years in prison and a $1 million fine.

Uribe, 28, was a licensed mortgage broker involved in Bay General Contracting Services, a non-licensed contracting service firm. Federal prosecutors alleged that the company obtained dozens of fraudulent loans between July 2006 and September 2007, but never built anything. Bay General never hired any employees and brought in no one to work on the projects it had obtained loans for, prosecutors said.

Prosecutors also alleged that Bay General was used to improperly inflate the value of properties being bought, to strip actual and fraudulently created equity out of properties and to serve as a vehicle for “siphoning the proceeds” from fraudulently obtained loans.

On Friday, Andrea Batronie, 31, a licensed title agent from Land O’Lakes, Florida, was sentenced to 30 months in prison for her part in the scheme.

Batronie was found guilty last October of conspiracy to commit mail, bank and wire fraud.

Uribe is said to have obtained mortgage loans under false pretenses through a shell contracting company using stolen identities, apparently on the premise of additional construction work to be done. At closing, Batronie would divert the funds into bank accounts under their control.

This may not be Andrea Batronie’s first time in court.

On June 9, 2001, the TV program “Judge Hatchett” featured a Michael Cericola verses a Scott and Andrea Batronie of Florida. Cericola claimed that Scott and Andrea Batronie had sold him a scuba tank on ebay that was unusable.

Cericola won.

You can view part of the episode on YouTube here.

UPDATE:

Unfortunately — although it’s not a surprise — the YouTube video has been “removed by the user.” 

We’re guessing that Scott and Andrea Batronie didn’t find it very funny anymore, after Andrea had to go before a real court and got a real sentence.

 If you can find another copy of it online, please let us know.

UPDATE:

U. S. District Judge Steven Merryday in Tampa sentenced Luis Uribe to 8.5 years in prison for his role in the  “equity stripping” mortgage fraud scheme that included identity theft.  

This sentence is in addition to a 34 month sentence that Uribe received for a $3.8 million mortgage fraud scheme in Chicago.

The Tampa Tribune reports that Uribe cooperated with investigators after his arrest, giving them information about the schemes and his co-defendants.  The newspaper also reports that “Before he was sentenced, Uribe apologized to the victims and to his family.  ‘I’ve been incarcerated nine months,’ he said. ‘I’m not the same person as when I came in.’ He said his wife divorced him as a result of this. ‘I ask the court to consider I have a responsibility as a father. … I can only ask the court to be as lenient as possible.’

“He said he hopes to enroll in spiritual and educational programs in prison.  ‘I want to live a good life that’s free of shame and crime,’ he said.”

“Merryday paraphrased his interpretation of the defendant’s plea for lenience: ‘Judge, don’t let the blood in your veins run as cold as mine was the day I committed this offense.’ The judge added, ‘I guess I would ask the same favor if I was in your shoes’.”

 

Can HUD Be Saved?

We had all but forgotten about the Department of Housing and Urban Development (HUD) when HUD secretary Alphonso Jackson resigned on Monday.

His resignation, far more than his tenure on the Cabinet, reminded us that HUD has a role to play in the current housing and mortgage crisis, particularly in regard to the regulation of Fannie Mae and Freddie Mac. 

We would like to see HUD take an active role in investigating whether discrimination played a role in the subprime mortgage crisis, which has hit the cities and minorities especially hard.

We would also like to see HUD participate in ramped-up efforts to expose and punish mortgage fraud, which has also disproportionately affected minorities.

But perhaps it is too late for HUD.

Created with great hope in 1965 as part of President Lyndon Johnson’s War on Poverty, HUD was given the powerful mission of developing and executing a national policy on housing and cities.  Since then, HUD has become a center of government corruption and waste, betraying the public trust in scandal after scandal under both Democratic and Republication administrations, as it awarded contracts and funneled enormous sums of public money on the basis of personal and political connections rather than the public interest.   

Alphonso Jackson’s resignation gives President Bush the opportunity to appoint a new HUD secretary who is capable of dealing with the devastating consequences of the housing crisis and the mortgage meltdown on the cities.

Whomever the president picks, the first job of any new HUD secretary will be to overcome and reverse HUD’s decades-long track record of incompetence and corruption.

That will be an extremely difficult task.

Mortgage Fraud Will Hit $2.5 Billion in 2008 — But Just Wait Until the Government Starts Giving Out Money

A new report by Tower Group, a research firm focusing on the global financial services industry, warns that losses from mortgage fraud will reach $2.5 billion in 2008, with comparable losses continuing in future years.

According to Tower Group, “Falling home prices and inappropriate mortgage underwriting have grabbed the headlines and much of the blame for mortgage credit woes in recent months. But the significant rise in mortgage fraud over the past 10 years is another important trend.”

“Mortgage fraud is difficult to track and takes many forms – for example, fraudsters cheating borrowers out of their properties with false promises of foreclosure avoidance or using the identity of a real person (often without his or her knowledge) to fraudulently purchase one or more properties.”

We think that the Tower Group figure of $2.5 billion falls far short of the mark.

When the federal government finally decides how it is going to help bailout homeowners — and we’re sure that it will, no matter who is elected president in November – it will create even greater opportunities for fraud.

Once the government puts billions of dollars up for homeowners facing foreclosure, the mortgage scammers will come crawling out of the woodwork to take advantage of the program.

They’re probably already working on the details…

Lawsuit Claims $80 Million Stolen in 1031 Exchange Scheme

More 1031 exchange accommodators are in very hot water.

And millions of dollars that people thought were going to be used for 1031 exchanges are missing.

Last week, Edward Okun and others were indicted in a 1031 exchange intermediary scheme that is alleged to have defauded clients of approximately $132 million.

A class action lawsuit has been filed in the California Superior Court of Santa Barbara County alleging that 130 people from 12 states lost over $80 million that they had placed with Southwest Exchange, Inc. (SWX) and several other 1031 exchange accommodators or qualified intermediaries (QIs).

The QIs are alleged to have been taken over by Donald Kay McGhan and other individuals with the purpose of stealing the money that had been entrusted to them to facilitate tax deferred 1031 exchanges.

The lawsuit claims that a “group of thieves discovered that these Exchange Accommodators were unregulated businesses holding large sums of cash that needed ready access to only a small percentage of the money to operate as going concerns. Pursuant to a conspiracy, these thieves purchased several Exchange Accommodators, gained access to their funds held in trust with the assistance of certain brokerage houses, stole the majority of those funds for personal gain, and caused over $80,000,000 in damages which was exposed when the real estate market finally cooled.”

According to the lawsuit, money held in trust by SWX was funneled to shell companies that Santa Barbara businessman Donald Kay McGhan set up to launder the funds, which were then withdrawn for his and his accomplices’ benefit.

The plaintiffs claim that the exchange accomodators were operated as a ponzi scheme by Donald Kay McGhan and his alleged accomplices.

Because the real estate market was hot in 2004 and 2005, money coming in for new 1031 exchanges could be used to cover funds deposited for previous exchanges that McGhan and his cohorts had already raided.

When the real estate market suddenly cooled at the end of 2005, the number of 1031 transactions declined and not enough money was coming in to cover the embezzled funds, according to the suit.

By April 2006, the scheme began to unravel as SWX faced liquidity problems, the lawsuit states, and by October 2006, approximately $80 million was missing from the trust funds.

The QI defendants in the lawsuit include Southwest Exchange, Inc. (SWX), doing business as Southwest Exchange Corporation and Southwest 1031 Exchange, and Qualified Exchange Services, Inc. (QES).

Individual defendants include Donald Kay McGhan, Jim J. McGhan, Dean A. Koch, Nikki M. Pomeroy, Albert Conton, Peter John Demarigny, Kyleen M. Dawson, and Megan L. Amsler.

Donald Kay McGhan, 73, was the founder, chairman, and president of the McGhan Medical Corporation, maker of silicone breast implants and for many years one of the Santa Barbara’s top employers. McGhan left the company, now called Inamed Aesthetics, in 1998, and the company later settled a fraud suit filed by the Securities and Exchange Commission alleging that McGhan had filed false financial statements that misled investors.  McGhan himself paid a $50,000 fine to the SEC.

Additional corporate defendants include Capital Reef Management Corp., Cennedig LLC, Medicor LTD, International Integrated Industries LLC, Ventana Coast LLC, and Sirius Capital LLC.

The plaintiffs also claim that major financial firms Citigroup, Salomon Smith Barney, and UBS Financial Services participated in the scheme.

There is also an ongoing criminal investigation.

You can see the complaint here.

Our advice:

If you’re planning to do a 1031 exchange, make sure that you perform due diligence in your choice of a QI or exchange accomodator, make sure that the QI is bonded, and make sure that you work with an experienced tax advisor and attorney who can help you navigate the 1031 exchange process. 

And, as we’ve said before, it is imperative that the Federation of Exchange Accomodators (FEA) work more closely with state and federal authorities to establish regulations for QIs that will restore and maintain public confidence.

UPDATE:

A $23 million settlement has been reached with UBS Financial Services, one of the defendants in the plaintiffs’ class action lawsuit.  You can read our post about the settlement here.

U.S. Court Rips Subprime Lender as “Ticking Time Bomb” — Faults New Century Executives and Big Four Auditor

The Final Report in the federal bankruptcy proceedings involving subprime mortgage lender New Century Financial Corp. was made public today by the United States Bankruptcy Court for the District of Delaware.

You can read the Final Report here.

Following an investigation that began in June 2007, the 550-page report reviews the accounting and financial reporting practices, loan origination operations, audit committee and internal audit department, and system of internal controls of New Century, once the second-largest originator of subprime home loans in the U.S.

According to the report, the now bankrupt mortgage lender used improper accounting practices while making risky loans, creating “a ticking time bomb” that led to the company’s collapse.

The New York Times has called the report “the most comprehensive and damning document that has been released about the failings of a mortgage business.”

The report states:

“New Century had a brazen obsession with increasing loan originations, without due regard to the risks associated with that business strategy.”

“The increasingly risky nature of New Century’s loan originations created a ticking time bomb that detonated in 2007.”

“Senior management turned a blind eye to the increasing risks of New Century’s loan originations and did not take appropriate steps to manage those risks.”

In one example cited in the report, New Century understated by more than 1000 percent the amount of money it needed to have on reserve to buy back bad loans. As a result, it reported a profit of $63.5 million in the third quarter of 2006, when it should have reported a loss.

New Century also failed to include the interest that it was obligated to pay to investors whenever it was forced to buy back bad loans.

In addition, the report concluded that New Century’s accounting firm, KPMG LLC, one of the Big Four accounting firms, actively enabled New Century’s improper accounting practices. 

Court-appointed examiner Michael J. Missal observed that “As an independent auditor [KPMG is] supposed to look very skeptically at any client, and here they became advocates for the client and in fact even suggested some improper accounting treatment that ultimately started New Century down the road it’s taken.”

The improper accounting also led to higher bonuses for New Century executives.

New Century once billed itself as “A New Shade of the Blue Chip.”

Creditors of New Century now say they are owed $35 billion.

The former subprime lending giant’s stock peaked at nearly $65.95 in late 2004 — on Wednesday it was trading at a penny.

You can read New Century’s Chapter 11 Bankruptcy filings here.

New Century is being sued by hundreds of investors and remains the target of a federal criminal investigation.

Mortgage Scam Website Still Online

We blogged yesterday about the federal indictment in “Operation Homewrecker” of Charles Head and 18 others for what the FBI alleges to be a major mortgage scam that defrauded homeowners of their houses, their equity and their credit.

Today we saw that a website of Charles Head’s company is still online.

The website of Head Financial Services (“The Smart Way to Shop for a Lender”) is hosted by the website for Huntington Beach News.

The website promises that you can “Get 3 competing mortgage bids with one easy form” and that “Lenders are standing by now to serve you.” 

 

A representative of the Huntington Beach News told us that the page was a paid advertisement.

He also said that he didn’t know who had paid for the page, but that he needed to take the page down.

The only link on the page is to Charles Head’s email at charleschead@aol.com.

UPDATE:

The Web page we originally linked to has been taken down.  You can see another Head Financial Web page that is still online here.

We’ve also found a reverse mortgage website that lists Operation Home Wrecker scammer Keith Brotemarkle as one of its brokers.  You can read our post here.

“Operation Homewrecker” Nets 19 Indictments for Mortgage Fraud Scheme — With More Charges Soon. Mortgage Brokers Alleged to be Involved.

Federal prosecutors in Sacramento, California, announced today the indictment of 19 people for mortgage fraud-related offenses under what it called “Operation Homewrecker.”

The indictment alleges that the leader of this nationwide scam is Charles Head, 33, of Los Angeles, California, who targeted homeowners in dire financial straits, fraudulently obtaining title to over 100 homes and stole millions of dollars through fraudulently obtained loans and mortgages.

The charges are divided into two separate indictments.

“Head One” involved a “foreclosure rescue” scam, netting approximately $6.7 million in fraudulently obtained funds taken from 47 homeowners, nearly all located in California. The allegations in Head One 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.

The following defendants were charged in the February 28, 2008 “Head One” indictment: Charles Head, 33, of La Habra, California; Jeremy Michael Head, 30, of Huntington Beach, California; Elham Assadi, aka Elham Assadi Jouzani, aka Ely Assadi, 30, of Irvine, California; Leonard Bernot, 51, of Laguna Hills, California; Akemi Bottari, 28, of Los Angeles; Joshua Coffman, 29, of North Hollywood; John Corcoran, aka Jack Corcoran, 52, of Anaheim; Sarah Mattson, 27, of Phoenix, Arizona; Domonic McCarns, 33, of Brea, California; Anh Nguyen, 36, of Los Angeles; Omar Sandoval, 32, of Rancho Cucamonga, California; Xochitl Sandoval, 29, of Rancho Cucamonga; Eduardo Vanegas, 28, of Phoenix; Andrew Vu, 39, of Santa Ana; Justin Wiley, 28, of Irvine; and Kou Yang, 32, of Corona, California.

“Head Two” involved an alleged “equity stripping” scheme, netting approximately $5.9 million in stolen equity from 68 homeowners in states across the nation.

While still targeting distressed homeowners and defrauding mortgage lenders through the use of straw buyers, in this version of the scheme, Charles Head would receive approximately 97 percent of the stolen equity, while his “sales agents” and employees, and the other defendants, would receive either the remaining 3 percent of equity or a salary from the fraudulently-obtained funding.

Instead of recruiting straw buyers, as in Head One, in Head Two the defendants allegedly recruited strangers via the Internet. They also used referrals from mortgage brokers to identify and solicit new victim homeowners. Beyond advertising on the Internet, the defendants also would send “blast faxes” to mortgage brokers throughout the country and generate mass emails to potential victims.

Through misrepresentations and omissions, victim homeowners would be offered what appeared to be their last best chance to save their homes. As in Head One, these victims also were left without their homes, equity, or credit.

Those charged in the Head Two indictment include Charles Head, John Corcoran, Kou Yang, each also charged in Head One, as well as Keith Brotemarkle, 42, of Johnstown, Pennsylvania; Benjamin Budoff, 41, of Colorado Springs, Colorado; Domonic McCarns, 33, of Brea, California; and Lisa Vang, 24, of Westminster, California.

The FBI has seized lavish sports cars, a fleet of high-end Italian motorcycles, thousands of documents and a condominium in Miami.

It remains to be seen how far this scam reached, or how many people and institutions were criminally involved.

Prosecutors made it clear that more charges would be filed. FBI Special Agent Drew Parenti said his agency is now “focusing on the industry professionals, the ‘insiders’ who have manipulated the mortgage loan process for their own financial gain.”

Particularly ominous is the statement by federal prosecutors that the defendants “used referrals from mortgage brokers to identify and solicit new victim homeowners”

Whatever the reach of this investigation, we know it is barely the tip of the iceberg of mortgage-related fraud.

We note too that the defendants’ scheme is alleged to have begun in January 2004 – well before the mortgage crisis grabbed national attention – and that the indictment only covers conduct up until March 2006 – well before the mortgage crisis drove many tens of thousands more people into the kind of desperation that the defendants manipulated.

This is only the beginning.

We’re going to see a lot more mortgage fraud indictments.

And as conditions worsen for more and more people who can not pay their mortgages, we’re going to see even more new mortgage fraud schemes.

UPDATE

We’ve discovered the website of Charles Head’s “Head Financial Services.”  To see the website and read the story, click here.

We’ve also found a reverse mortgage website that lists Operation Home Wrecker scammer Keith Brotemarkle as one of its brokers.  You can read our post 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.