Examples of Financial Institution Fraud Investigations - Fiscal Year 2014
The following examples of financial institution fraud investigations are written from public record documents on file in the courts within the judicial district where the cases were prosecuted.
Colorado Man Sentenced in Mortgage Fraud Scheme
On Feb. 11, 2013 in Denver, Colo., Roger Keith Howard was sentenced to 108 months in prison and three years of supervised release. Howard pleaded guilty in June 2013 to three counts of wire fraud and one count of money laundering. According to court documents, in 2006 and 2007, Howard devised and participated in three similar but separate mortgage fraud schemes. Howard operated under the business names of Spring Creek Mortgage Real Estate Services and Open Range Development LLC. Howard’s co-defendant Oai Quang Luong worked for a company that processed mortgage loan applications on behalf of potential home buyers. In August 2006, Howard asked Luong to obtain the $250,000, and Luong did so, using funds loaned by another individual. Howard persuaded seventeen individuals, his so-called investors, to purchase the town homes at a development known as Oliveglen Villas in Aurora, Colo. Howard arranged for the individuals to obtain the mortgage loans by causing the applications to include false or misleading information or omit material information. As part of the mortgage application process, a borrower obtained from his or her bank a form known as a Request for Verification of Deposit (VOD), which verified the balance of an account. In this case, VODs were misleading because Howard and others working at his direction arranged for bank account balances to be inflated temporarily by depositing money into the accounts and, after the balances were verified and the VODs were completed, the money was withdrawn. All of the town-home sales prices were supported by appraisals, most of which were done by an associate of Howard’s which he told the appraiser the amount he wanted. For each closing, the closing agent prepared a settlement statement, reflecting that the disbursements of loan proceeds included a payment “from Seller’s Funds at Settlement” to Open Range Development. These payments were the “service fees” mentioned in the contract with the developer; they ranged from $85,700 to $117,204. After the closings, Howard used some of that money to make payments to all but one of the buyers, but those payments were not disclosed to the lenders or their underwriters. Howard for a time wrote checks payable to the borrowers to cover the differences between rental incomes and mortgage payments, but he stopped doing so on April 19, 2007. A few borrowers thereafter used their own money to make mortgage payments, but eventually all of the mortgages went into default and the lenders foreclosed. At that point, there were about twelve different lenders holding the mortgages on the town homes, and they lost approximately $7,609,729. Luong was sentenced in August 2013 to 18 months in prison.
New York Couple Sentenced for Involvement in Mortgage Fraud Scheme
On January 28, 2014, in Hartford, Conn., Winston Shillingford, of Nesconset, N.Y., was sentenced to 48 months in prison and three years of supervised release. His wife, Marleen Shillingford, also of Nesconset, was sentenced to 36 months in prison and three years of supervised release. In October 2011, Winston and Marleen Shillingford each pleaded guilty to one count of conspiracy to commit wire fraud and one count of conspiracy to commit money laundering. According to court documents, the Shillingfords were involved in the operation of Waikele Properties Corp., a real estate company with offices in Connecticut and New York. From approximately 2001 to August 2011, the Shillingfords and others conspired to obtain fraudulent mortgages for the purchase of more than 40 multi-family properties. As part of the scheme, the Shillingfords and their co-conspirators purchased existing multi-family houses, and vacant parcels of land and erected new houses on them to sell. The co-conspirators recruited individuals to purchase the properties, acted as the buyers’ real estate agent and assisted the buyers in applying for residential mortgage loans to purchase the houses. They then prepared loan applications for the buyers that included fraudulent information concerning, among other things, the buyers’ employment, income, assets and liabilities, previous property ownership and intention to make the properties their primary residences. They also provided fraudulent supporting documentation with the loan applications, including false letters from fictitious employers, false earnings statements and fraudulent bank records. After the loans were approved, the illicit proceeds of the scheme were wired into the Waikele Properties bank account and then transferred to members of the conspiracy. Some of the proceeds also were used to continue the mortgage fraud scheme. The parties have agreed that victim financial institutions suffered losses of between $2.5 million and $7 million as a result of this scheme.
Woman Sentenced in Connection with Mortgage Fraud Investigation
On January 27, 2014, in Raleigh, N.C., Liliana Delia Deiac, of Jamaica, N.Y., was sentenced to 18 months in prison, three years of supervised release and ordered to pay $674,856 in restitution to a bank. Deiac pleaded guilty on August 6, 2013 to making material false statements. According to court documents, on May 18, 2010, Deiac was questioned by special agents with the IRS and the FBI investigating a fraudulent property flipping scheme. Deiac was questioned because evidence showed that she was involved in the purchase of a $2 million property in Raleigh using her husband’s name and credit, and without the husband’s knowledge or consent. Participants in the scheme failed to make mortgage payments on the property, resulting in foreclosure and losses to a bank. When questioned, Deiac lied about the circumstances of her involvement in the transaction. The investigation established that Deiac participated in the transaction based upon promises of cash kickbacks from others who orchestrated the deal.
Former Builder Sentenced for Fraud and Theft of His Ex-Wife’s Identity
On January 14, 2014, in Pensacola, Fla., Lawrence Allen Wright, of Niceville, Fla., was sentenced to 75 months in prison and ordered to pay over $3.7 million in restitution. Wright pleaded guilty on October 2013 to conspiracy to commit bank fraud, conspiracy to commit money laundering, bank fraud, mail fraud, aggravated identity theft, and making a false statement to federally insured financial institution. According to court documents, Wright solicited individuals to act as straw buyers to purchase unimproved lots located in Walton County, so Wright could build homes on the lots. While soliciting the straw buyers, Wright promised to make payments on the fraudulent loans and pay the earnest money deposit and closing costs for the straw buyers. Wright told the straw buyers that he would be able to sell the properties for a profit after he built homes on them and that he would then share a portion of the proceeds with the straw buyers. In addition, Wright caused another individual to sign his ex-wife’s name on legal documents without his ex-wife’s knowledge or permission. The legal documents included mortgage loan documents, promissory notes, and tax returns.
Developer Sentenced for Role in Mortgage Fraud Scheme
On January 14, 2014, in Raleigh, N.C., David Lewis Johnson, Jr., of Cary, N.C., was sentenced to a 96 months in prison, five years of supervised release and ordered to pay $2,413,605 to 11 banks and lenders who were victims of the fraud. Johnson was sentenced on conspiracy to commit mail, wire, and bank fraud. According to court records, Johnson, operating through E-Z N Homes, engaged in a real estate “flipping” scheme. Johnson and others utilized various schemes to fraudulently obtain more than 100 properties with total mortgage loans in excess of $20,000,000. The defendant used straw buyers to purchase properties in exchange for a kickback from the loan proceeds. Johnson also fabricated investment statements to make it appear that straw buyers had, in some instances, one million dollars in assets. In fact, the straw buyers recruited by Johnson did not possess the income or assets to support the loans obtained in their names. As a result of the scheme and Johnson’s conduct, banks and lenders issued loans to the conspirators in the amount of approximately $9.1 million, which resulted in $3.4 million in actual losses to the banks and lenders.
Former Connecticut Resident Sentenced for Defrauding Banks
On January 13, 2014, in New Haven, Conn., William Leckey, of Buffalo, N.Y., formerly of Madison, Conn., was sentenced to 29 months in prison, three years of supervised release and ordered to pay $1,709,640 in restitution to two victim financial institutions. On August 1, 2013, Leckey pleaded guilty to one count of conspiracy to commit bank fraud. According to court documents, from approximately 2002 until 2012, Leckey was the president and owner of Anchor Capital Services, Inc. (ACS), which provided financing to companies looking to purchase heavy equipment. ACS provided its customers with high interest rate leases, and funded the transactions through lines of credit it had available with various financial institutions. ACS would draw down on the lines of credit it had with these financial institutions by pledging its lease agreements and the related equipment as collateral. After each deal was funded by the financial institutions, ACS’s customer would make monthly payments to ACS on the lease, and ACS would use those funds to pay down the line of credit with the bank. Leckey and others engaged in a long-running fraud scheme to obtain money from financial institutions to use as operating capital for ACS. As part of the scheme, Leckey and others made false representations to the financial institutions that ACS had entered into lease transactions with customers for specified pieces of heavy equipment when, in fact, they knew that no such lease transaction had been conducted or the transaction never transpired after the lease had been signed. As a result of these false statements, the financial institutions funded these nonexistent transactions in amounts well in excess of $100,000 on a number of occasions. As a result of this scheme, ACS received more than $1.7 million from financial institutions on its letters of credit.
Leader of Mortgage Company Sentenced for Role in Fraud Scheme
On December 16, 2013, in San Diego, Calif., Brian Nels Peterson, the head of a mortgage company called Terra Finance, was sentenced to 41 months in prison and ordered to pay $542,075 in restitution. According to court documents, Peterson obtained mortgage funds through deceptive means, including falsifying income on applications to qualify borrowers for loans. Peterson, who held a broker’s license with the California Department of Real Estate, personally signed most of the fraudulent loan applications containing false income, employment, asset, and liability information submitted under his license number. Peterson orchestrated the fraudulent conduct of employees, borrowers, and industry professionals as the head of Terra Finance. He recruited a cadre of loan officers, loan processors, office staff, real estate “investors” and other industry professionals to participate in his scheme, including appraisers, tax preparers, and lender representatives. These knowing participants included people who made up job titles and income figures so borrowers would appear to qualify for a loan, added borrowers to another person’s bank account and then had the borrowers falsely claim the funds in the account as assets, fabricated false “verifications” of phony information in the loan applications, and prepared appraisals “to order” based on the property value Peterson sought. Borrowers used a succession of fake loan applications to purchase multiple properties that they could not afford. Peterson earned over $1 million from his fraudulent loan business through broker’s fees, kickbacks from cash-out refinances, and other sources in 2006 alone. He failed to report his over $1 million income in 2006 and he evaded paying taxes by arranging to be paid in cash, and other means.
Former Real Estate Investor Sentenced for Bank Fraud and Money Laundering
On December 9, 2013, in Orlando, Fla., James Olivos, of Lake Mary, Fla., was sentenced to 60 months in prison and ordered to pay a $2,866,121 money judgment. Olivos pleaded guilty on September 18, 2013 to bank fraud and money laundering. According to court documents, between March 2003 and November 2007, Olivos engaged in a scheme wherein he recruited "straw purchasers" to purchase expensive homes, which they could not afford. Olivos prepared loan applications for these straw purchasers, which grossly overstated their incomes and gave false employment histories. Additionally, these applications stated that these homes would be used as primary residences, but Olivos had actually told these buyers that the homes would be investments and that he would find renters to cover the mortgage payments. Further, in order to increase his profits, Olivos convinced the sellers of the homes to inflate the sales prices by stating additional money would be necessary for home improvement. Olivos would then split the proceeds of the sales with the sellers. As a result of this fraud, Olivos caused a total loss to the lenders of approximately $3.2 million dollars.
Ohio Woman Sentenced for Financial Crimes
On December 5, 2013, in Akron, Ohio, Jocelyn Hale, of Cleveland, Ohio, was sentenced to 45 months in prison and ordered to pay $78,004 in restitution. Hale pleaded guilty in October 2013 to conspiracy to commit bank fraud, money laundering, conspiracy to commit wire fraud and mail fraud, and aggravated identity theft. According to her plea agreement, Hale used identities of several individuals without their authority, and assisted another defendant to defraud two banks and the Lending Club Corporation. Hale and her co-defendant funded two difference bank accounts with fraudulent checks totaling $13,027 and $6,172 and then attempted to quickly remove and launder the fraudulent proceeds. They then funded another bank account with illegally obtained funds from a fraudulently obtained Lending Club loan in the amount of $30,000. Once the illegal obtain funds were deposited, Hale and the co-defendant again quickly attempted to remove and launder those funds. Finally, Hale admitted to assisting the co-defendant to defraud the Ohio Department of Job and Family Services by filing false and fraudulent claims for unemployment benefits using a fictitious company and fictitious employees based on stolen identities.
Connecticut Man Sentenced for Mortgage Fraud
On November 18, 2013, in Hartford, Conn., Juan Velez, of Waterford, was sentenced to 12 months and one day in prison, five years of supervised release and ordered to pay $908,695 in restitution to four victim financial institutions. Velez was also ordered to spend the first six months of his supervised release in home confinement. On June 20, 2013, Velez pleaded guilty to one count of bank fraud for his role in a mortgage fraud scheme. According to court documents, in 2006 and 2007, Velez and others engaged in a mortgage fraud scheme involving multiple properties in New London, Conn. As part of the scheme, Velez acquired properties from a co-defendant and other individuals and then sold the properties to another co-defendant at inflated prices using fraudulently obtained mortgage loans. When Velez sold the property to his co-defendant, the loan paperwork contained multiple false statements, including information related to income, intention to occupy the property as a primary residence, and the amount of money provided to purchase the property. Based on these false statements, a co-defendant obtained a mortgage loan in the amount of $492,699 from the bank. Velez and others shared the profits of this and other fraudulently obtained residential mortgage loans, which totaled more than $1.2 million.
Former Illinois Real Estate Developer Sentenced for Fraud Scheme
On November 8, 2013, in Springfield, Ill., Shara Andrews, aka Shara Manning, of Mobile , Ala., was sentenced to 24 months in prison, five years of supervised release and ordered to pay $598,536 in restitution. According to court documents, in November 2004, Andrews purchased, on behalf of her company, a residential development property in Peoria known as the Wyndhill Estates subdivision. To finance the purchase, Andrews obtained a bank loan of $895,000. In March 2005, Andrews obtained a second loan from the bank for $670,000 for development of the subdivision. The two loans were later consolidated into a single loan of approximately $1,453,000, which was secured by the Wyndhill Estates Project real estate. Andrews’ firm was the developer and general contractor for the project. From August 2006 to January 2009, Andrews sold lots, ranging in price from $80,000 to $300,000, to various real estate buyers and then served as the general contractor for construction of the buyers’ homes. Andrews admitted that she used the money for her personal use and for her company, rather than repaying the bank as required and ensuring clear title to the buyers. As part of the fraud scheme, Andrews wrote a check, which she knew would bounce due to insufficient funds, to the bank for release of a mortgage, and then converted the proceeds from the lot’s sale to her and her company’s use. Andrews submitted fraudulent lien waivers from subcontractors and suppliers to real estate buyers to cause the buyers to release funds to her.
Ohio Couple Sentenced for Mortgage Fraud Schemes
On November 6, 2013, in Columbus, Ohio, Deborah L. Kistner was sentenced to 66 months in prison, five years of supervised release and ordered to pay $9,644,601 to victims. Her husband, Mark A. Kistner, was sentenced to five years of probation, ordered to forfeit his retirement account worth about $300,000 and to pay $381,764 in restitution. Deborah Kistner pleaded guilty to three counts of conspiracy to commit bank fraud, three counts of conspiracy to commit money laundering and one count of bank fraud. Mark Kistner pleaded guilty to one count of conspiracy to commit money laundering. According to court documents, Deborah Kistner operated Premiere Title Company in Hilliard, Ohio. She deceived lenders while securing fraudulent real estate loans between July 2006 and July 2010. She conspired with others to secure inflated loans for real estate and kept the excess proceeds or used them to pay others involved in the conspiracy. Deborah Kistner intentionally failed to provide lenders with critical purchase contract language and accurate settlement statements. Deborah and Mark Kistner also schemed to defraud lenders and launder the money they received through simultaneous “short sale” closings where the lenders would agree to absorb losses on existing mortgage loans while Deborah Kistner actually sold those properties on the same day for a profit and laundered the profits through bank accounts controlled by Mark Kistner.
Three Sentenced for Conspiracy, Insider Trading and Tax Evasion
On November 6, 2013, in Atlanta, Ga., Douglas Ballard, Guy Mitchell and Joseph Todd Foster were sentenced for their roles in a conspiracy to commit bribery and bank fraud, insider trading and tax evasion that occurred at the now-failed Integrity Bank. Ballard was sentenced to 30 months in prison, three years of supervised release and ordered to pay $1,000,000 in restitution. Ballard pleaded guilty on July 6, 2010 to conspiracy to commit bank fraud, bribery and income tax evasion. Mitchell, of Miami, Fla., was sentenced to 60 months in prison, three years of supervised release and ordered to pay $5,661,650 in restitution. Mitchell pleaded guilty on July 1, 2013 to conspiring to commit bank fraud and bribery. Foster, of Blakely, Ga., was sentenced to three years of probation. Foster pleaded guilty on July 6, 2010 to securities fraud. According to information presented in court, Ballard, a former Executive Vice-President at the now-failed Integrity Bank, formerly headquartered in Alpharetta, Ga., received more than $200,000 in cash bribes from Mitchell, the bank’s largest borrower. At the same time in 2006, when Ballard was being bribed, he allowed Mitchell to draw more than $7 million from a loan that was supposed to be used for renovation and construction at the Casa Madrona Hotel in Sausalito, Calif., despite the fact that no renovation or construction work was done. Instead, Mitchell used the money to buy an island in the Bahamas, travel by private jet, purchase Miami Heat basketball tickets, buy fancy jewelry and expensive cars, and a mansion in Coconut Grove, Fla. Mitchell received $20 million in additional business loans from Integrity Bank after the Casa Madrona loan proceeds were exhausted, and he continued to use some of that money for personal expenses. Mitchell defaulted on the loans and Integrity Bank eventually failed. Foster was Integrity Bank’s Vice President in charge of Risk Management. He sold nearly all of his Integrity stock in August 2006 based on materially adverse information about the company that was not available to the public. Specifically, Foster knew that the bank was in an increasingly precarious position because of Mitchell’s financial difficulties and pending default.
Texan Sentenced for Money Laundering and Mail Fraud
On November 1, 2013, in Austin, Texas, Robert Andrew Perkins, aka Robert Johnson, was sentenced to 120 months in prison, three years of supervised release and ordered to pay $6,273,562 in restitution. Perkins pleaded guilty on August 2, 2013 to money laundering and mail fraud. According to court documents, on or about May 31, 2007, Perkins knowingly made a false statement to a financial institution for the purpose of influencing that institution’s decision whether to grant a loan application. He represented to a bank that the home to be constructed with the loan proceeds would be his primary residence, even though he intended to sell the home rather than live in it. Perkins also falsely stated that he had cash and liquid assets worth more than $1,000,000, when in fact the value of his cash and liquid assets was less than $10,000. He further stated that he owned real property in Katy, Texas that in fact did not exist, and he stated that his total liabilities were less than $1,000,000, even though he had liabilities of approximately $5,000,000. The bank granted the loan and paid substantial loan proceeds based on Perkins’ false loan application.
Former Board of Directors Member Sentenced in Scheme Contributing to Closure of Federal Credit Union
On October 24, 2013, in Philadelphia., Pa., Miqueas Santana was sentenced to 36 months in prison, five years of supervised release and ordered to pay $528,798 in restitution to the victim credit union. Santana previously pleaded guilty to misapplication and embezzlement and money laundering. According to court documents, between July 2009 and June 2011, Santana, with the permission and approval of the former manager of the victim credit union, Ignacio Morales, withdrew money from his accounts without depositing sufficient money into the accounts to cover the withdrawals. This resulted in deficit account balances in Santana’s five personal and business savings and checking accounts of more than $500,000. Santana used this money to purchase multiple pieces of real estate throughout Philadelphia. In June 2011, the National Credit Union Association took over the operation of the victim credit union, but within two weeks, closed the credit union and liquidated its assets. The victim credit union’s former manager, Ignacio Morales, has previously been sentenced to 90 months in prison on multiple counts relating to embezzlement and conspiracy to defraud the government regarding the cashing of fraudulent tax refund checks.
Man Sentenced in Mortgage Fraud Scheme
On October 23, 2013, in Los Angeles, Calif., Lemuel David Thornton, of Las Vegas, was sentenced to 24 months in prison and ordered to pay $232,000 in restitution to a victim bank. Thornton pleaded guilty in June 2012 to one count of conspiracy to commit wire fraud and one count of money laundering. According to his plea agreement, Thornton engaged in an illegal scheme to defraud lenders who made residential mortgage loans. In early 2006, Thornton and his co-conspirators obtained financing to purchase residential properties by preparing Uniform Residential Loan applications for lenders which contained false and misleading statements about income and employment. Thornton and his co-conspirator submitted to the escrow companies fraudulent demand letters from sham companies, directing that specified funds be disbursed to the sham companies to be used for upgrades, construction, repairs, and landscaping for the property to be purchased. Thornton and his co-conspirator would cause the money paid to the sham third-party company at the close of escrow to be wired from the escrow company into an account over which Thornton or his co-conspirator had control. The money would then be used for a purpose other than the improvements specified in the demand letters and the term of the loan.
Frontman in Rock Band Sentenced in Multi-Million Dollar Loan Fraud Case
On October 21, 2013, in Santa Ana, Calif., Robert Brandon Mawhinney, the singer in a Los Angeles-based rock band called Lights Over Paris, was sentenced 84 months in prison. Mawhinney, of Anaheim, pleaded guilty on April 22, 2013, to four counts of making false statements to federally insured banks and one count of money laundering. According to court documents, Mawhinney obtained more than $11 million in credit after applying for loans by submitting phony brokerage statements that falsely showed that he had almost $8 million in assets. The phony statements were altered versions of real statements from brokerage accounts that actually contained less than $10,000. Mawhinney told bank officials that he needed the money to fund his music business and to purchase recording equipment. Mawhinney used the money from the loans to pay for travel, entertainment and a luxury tour bus that cost well over $750,000. In a related case, Mawhinney helped two associates fraudulently obtain more than $1.7 in loans for their music business. When Mawhinney defaulted on his loans, the victim banks sustained actual losses of over $8.4 million. When his associates defaulted on their loans, lending institutions suffered losses of approximately $1.75 million.
Pennsylvania Man Sentenced for Bank Fraud and Money Laundering
On October 18, 2013, in Pittsburgh, Pa., Peter M. Cicero, of Gibsonia, Pa., was sentenced to 54 months in prison, five years of supervised release and ordered to pay $3,632,298 in restitution to various victim companies. Cicero previously pleaded guilty to bank fraud and money laundering. According to court documents, Cicero participated in several fraud schemes. Cicero defrauded one bank in connection with the $1.8 million loan made to fund Cicero's $3.3 million purchase of certain companies associated with closing real estate transactions. Cicero defrauded that bank by overstating the true sales price of the companies, falsely representing that sources outside of the closing companies would make substantial payment toward the purchase of the companies, when, in fact, Cicero took money from the very companies that he was purchasing to fund the purchase. Cicero submitted a forged subordination agreement to the bank and received $500,000 back from the seller of the companies after the closing, which represented an overstatement of the sales price. In separate schemes, Cicero caused the submission of fraudulent loan applications and other documents to lenders to obtain loan collateralized by real estate. Cicero committed money laundering by causing a wire transfer of some of the proceeds of the mortgage fraud scheme to an account at another bank. Cicero also committed bankruptcy fraud by concealing money and jewelry in connection with his bankruptcy filings, and access device fraud by using a credit card without authorization.