July 9, 2009, 4:44 am
The Manhattan district attorney announced the indictment of 13 people Wednesday in what he called a multimillion-dollar mortgage-fraud scheme that victimized lenders and low-income homeowners.
The 13, employed in nearly every profession in the real estate industry — including lawyers, real estate agents, appraisers and bank workers — were accused of participating in 19 sham real estate transactions, The New York Times’s C.J. Hughes reported.
Each of the defendants has been charged with a handful of larceny and fraud charges, the most serious of which, enterprise corruption, could result in 25-year sentences.
Prosecutors said the fraud occurred over a four-year period ending in April in Cypress Hills and East New York in Brooklyn, Washington Heights in Manhattan, and in Westchester County and on Long Island.
The criminal enterprise, which they said tricked lenders into issuing loans for homes whose values were artificially inflated and then had lawyers pocket some of the money, could ultimately show losses of more than $100 million, as the investigation is continuing, Manhattan District Attorney Robert M. Morgenthau said. The 19 transactions that prosecutors called shams totaled $12 million.
A financial system that encouraged the bundling of many overvalued home loans for sale as securities to unwitting investors, in a practice that has been blamed for kick-starting the current economic crisis, also played a role, he added.
“The banks had no occasion to be concerned or to check up because they were going to get rid of these mortgages,” Mr. Morgenthau said. “It was too easy for corrupt employees to falsify documents.”
The lenders that took the heaviest losses, according to Wednesday’s announcement, were New Century Mortgage, which probably lost more than $32 million and is no longer in business; Fremont General, which lost about $18 million; and Long Beach Mortgage Company, which has since been absorbed by Washington Mutual, and lost about $9 million.
Among the people indicted on Wednesday were the three principals of the AFG Financial Group, a mortgage broker based in Garden City, on Long Island, who, according to the indictment, were the masterminds of a plan hatched at Manhattan strip clubs in 2004.
AFG, which had 20 employees, was founded expressly to defraud banks, Mr. Morgenthau said. “If they had a legitimate side, it was by accident,” he said.
Under the complex plan, which the indictment charged was devised by Aaron Hand, the company’s president, and Eugene Culbreath and Eric Shields, the company would seek out homeowners in trouble with their mortgages, often by finding owners who had missed mortgage payments, and offer to take their homes off their hands.
If the owners agreed, the defendants would recruit buyers with good credit histories who would apply for mortgages to buy the properties, according to the indictment. Simultaneously, the defendants would use falsified documents to inflate the home’s value, to get the largest mortgage possible.
Finally, at the closings the sellers’ lawyers, who Mr. Morgenthau said were also in on the scheme, would essentially pocket the checks from the lenders. He said that the buyers, who were promised they could get out of the deal at some point, were stuck with mortgages they could not afford.
The indictment did not accuse any of the buyers or sellers of wrongdoing.
Mr. Hand pleaded not guilty on Wednesday afternoon before Judge Michael H. Melkonian in State Supreme Court in Manhattan. He was released on $400,000 cash bail, according to Richard Wool, his lawyer, who told The Times that his client had no comment.
Seven other defendants pleaded not guilty on Wednesday, another was expected to appear in court on Thursday, and the other four are not yet in custody. Twelve other people have already pleaded guilty to their involvement in the crimes, Mr. Morgenthau said.
Not only did AFG inflate the value of homes, according to the district attorney, but it also invented some. At one point during the press conference announcing the charges, Mr. Morgenthau held up a photo that was supposed to be of a two-family Bronx house valued at $500,000. It showed an empty, weedy lot.
Go to Article from The New York Times »
Go to Press Release from the Manhattan District Attorney »
The 13, employed in nearly every profession in the real estate industry — including lawyers, real estate agents, appraisers and bank workers — were accused of participating in 19 sham real estate transactions, The New York Times’s C.J. Hughes reported.
Each of the defendants has been charged with a handful of larceny and fraud charges, the most serious of which, enterprise corruption, could result in 25-year sentences.
Prosecutors said the fraud occurred over a four-year period ending in April in Cypress Hills and East New York in Brooklyn, Washington Heights in Manhattan, and in Westchester County and on Long Island.
The criminal enterprise, which they said tricked lenders into issuing loans for homes whose values were artificially inflated and then had lawyers pocket some of the money, could ultimately show losses of more than $100 million, as the investigation is continuing, Manhattan District Attorney Robert M. Morgenthau said. The 19 transactions that prosecutors called shams totaled $12 million.
A financial system that encouraged the bundling of many overvalued home loans for sale as securities to unwitting investors, in a practice that has been blamed for kick-starting the current economic crisis, also played a role, he added.
“The banks had no occasion to be concerned or to check up because they were going to get rid of these mortgages,” Mr. Morgenthau said. “It was too easy for corrupt employees to falsify documents.”
The lenders that took the heaviest losses, according to Wednesday’s announcement, were New Century Mortgage, which probably lost more than $32 million and is no longer in business; Fremont General, which lost about $18 million; and Long Beach Mortgage Company, which has since been absorbed by Washington Mutual, and lost about $9 million.
Among the people indicted on Wednesday were the three principals of the AFG Financial Group, a mortgage broker based in Garden City, on Long Island, who, according to the indictment, were the masterminds of a plan hatched at Manhattan strip clubs in 2004.
AFG, which had 20 employees, was founded expressly to defraud banks, Mr. Morgenthau said. “If they had a legitimate side, it was by accident,” he said.
Under the complex plan, which the indictment charged was devised by Aaron Hand, the company’s president, and Eugene Culbreath and Eric Shields, the company would seek out homeowners in trouble with their mortgages, often by finding owners who had missed mortgage payments, and offer to take their homes off their hands.
If the owners agreed, the defendants would recruit buyers with good credit histories who would apply for mortgages to buy the properties, according to the indictment. Simultaneously, the defendants would use falsified documents to inflate the home’s value, to get the largest mortgage possible.
Finally, at the closings the sellers’ lawyers, who Mr. Morgenthau said were also in on the scheme, would essentially pocket the checks from the lenders. He said that the buyers, who were promised they could get out of the deal at some point, were stuck with mortgages they could not afford.
The indictment did not accuse any of the buyers or sellers of wrongdoing.
Mr. Hand pleaded not guilty on Wednesday afternoon before Judge Michael H. Melkonian in State Supreme Court in Manhattan. He was released on $400,000 cash bail, according to Richard Wool, his lawyer, who told The Times that his client had no comment.
Seven other defendants pleaded not guilty on Wednesday, another was expected to appear in court on Thursday, and the other four are not yet in custody. Twelve other people have already pleaded guilty to their involvement in the crimes, Mr. Morgenthau said.
Not only did AFG inflate the value of homes, according to the district attorney, but it also invented some. At one point during the press conference announcing the charges, Mr. Morgenthau held up a photo that was supposed to be of a two-family Bronx house valued at $500,000. It showed an empty, weedy lot.
Go to Article from The New York Times »
Go to Press Release from the Manhattan District Attorney »
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