The following examples of financial institution fraud investigations are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
Former Texas Bank Official Sentenced For Transporting Stolen Funds Across State Lines and Money Laundering
On February 24, 2009 in Tyler, Texas, former banker Brent Steven Lemons, of Arlington, Texas was sentenced to 75 months in prison and ordered to pay $1.8 million in restitution for money laundering and transporting stolen funds across state lines. According to information presented in court, Lemons worked as the senior vice president of investments and financial advisor at Banc of America Investment Services and as president of the Tyler Market of Bank of America. He withdrew $80,000 of an investor's funds without their knowledge or consent and transported those funds to Louisiana in order to transfer them to Boyd Corporation, which is associated with Sam's Town Casino in Shreveport, Louisiana. Lemons was indicted by a federal grand jury on March 4, 2008. He pleaded guilty on August 20, 2008.
Delaware Business Man Sentenced on Fraud Charges
On February 5, 2009, in Wilmington, Del., Andrew N. Yao, of Bryn Mawr, Pennsylvania, was sentenced to 60 months in prison, to be followed by five years of supervised release, and ordered to pay more than $12.5 million in restitution. In addition, Yao is subject to an order of criminal forfeiture for an additional amount of approximately $1 million. In June 2008, Yao pleaded guilty to a 10 count Indictment charging him with making false statements to a financial institution, mail fraud, wire fraud, and engaging in an illegal monetary transaction. According to court documents, from 1998 through 2002, Yao obtained a series of personal and business loans totaling over $40 million dollars. During this time, Yao was the president and sole shareholder of Student Finance Corporation ("SFC"), a closely-held Pennsylvania corporation operating in Newark, Delaware. SFC was in the business of funding and servicing student loans and has been in bankruptcy since June 2002. Court documents state that from the early 1990s through 2002, Yao hired an accountant to prepare fraudulent personal tax returns for himself and fraudulent corporate tax returns for SFC, as well as fraudulent Personal Financial Statements. Those tax returns were for the purpose of showing Yao's net worth and were not filed with the IRS. The accountant prepared returns stating that Yao’s income exceeded the income reported to the IRS by millions of dollars. Yao provided fraudulent financial documents to various lenders, including Wilmington Trust of Pennsylvania, First Union National Bank, U.S. Bancorp and Wachovia Mortgage, when applying for personal and business loans. These loans included a $25 million dollar line of credit for SFC, a personal loan for a private plane purchased by Yao that was valued at over $4 million, a loan for the $3 million refinance of Yao’s vacation home, and other loans that generated $7.2 million in cash for him.
Virginia Man Sentenced to 84 Months in $33 Million Mortgage Fraud Case
On January 30, 2009, in Alexandria, Va., Vijay K. Taneja, of Fairfax, Va., was sentenced to 84 months in prison, followed by three years of supervised release, and ordered to pay $33 million in restitution to four financial institutions: Franklin Bank, First Tennessee Bank, Wells Fargo Bank, and EMC Mortgage Co., a wholly owned subsidiary of J.P. Morgan Chase & Co. Franklin Bank is currently under FDIC receivership. According to court documents, Taneja through his company, Financial Mortgage, Inc., (FMI), utilized a group of financial institutions (referred to as warehouse lenders) to temporarily fund mortgages and then sold the mortgages to another group of financial institutions as long-term investments. Beginning in 2001, FMI began defrauding these financial institutions, causing an accumulated loss of at least $33 million to four financial institutions by the time FMI filed for bankruptcy in June 2008. Taneja accomplished the scheme mainly by creating fictitious loans with bogus loan closings, selling the same legitimate loan to multiple investors and pocketing the proceeds generated from refinancing loans, when the bulk of those proceeds were intended to payoff prior mortgages on the same properties.
Rhode Island Man Sentenced for Bank Fraud and Tax Fraud
On January 5, 2009, in Providence, R.I., Michael P. Tatro was sentenced to 51 months in prison, followed by five years of supervised release. As a condition of supervised release, Tatro was ordered to pay $59,178 in restitution to Citizens Bank and must cooperate with the Internal Revenue Service (IRS) to resolve his outstanding tax liabilities. On March 11, 2008, Tatro pleaded guilty to one count of making and subscribing a false tax return and one count of bank fraud. According to documents filed and statements made in court, from May 2002 through September 2003, Tatro engaged in a scheme to defraud Citizens Bank through which he caused various checking accounts to be opened, created counterfeit checks, caused the counterfeit checks to be negotiated through accounts under his control, and caused the funds to be withdrawn or otherwise transferred out of the accounts before the counterfeit nature of the checks was discovered. Tatro also filed a false 2002 federal tax return that stated he was single and his income was $77,944, when, in fact, he was married and had received income substantially in excess of that amount during that year. He failed to report on his tax return proceeds of the bank fraud, as well as funds he obtained under false pretenses from his employer, Thielsch Engineering. Tatro admitted that the intended loss related to the bank fraud was $150,134, and the tax loss was $58,000.
Brothers Sentenced in Million Dollar Mortgage Fraud Conspiracy
On December 5, 2008, in Alexandria, Va., Mohammed Rababeh, of Vienna, Va., and Ahmed Rababeh, of Haymarket, Va., were sentenced for their roles in a million dollar mortgage fraud conspiracy. Mohammed Rababeh was sentenced to 24 months in prison and Ahmed Rababeh received 18 months in prison. The two men had pleaded guilty on September 24, 2008, to conspiracy charges arising from a fraud scheme involving several real estate mortgage loans that they and their co-conspirators obtained between April 2004 and September 2006. According to court documents, the brothers conspired with Randolph Baltimore, 50, of Leesburg, Virginia, to submit fraudulent loan applications overstating Baltimore’s income and omitting his liabilities, so that Baltimore could purchase properties the Rababehs wanted to sell. The Rababehs agreed to pay Baltimore $27,500 to serve as the buyer on four such properties. Mohammed and Ahmed Rababeh engaged in similar fraud schemes to obtain loans to buy properties in their own names, according to court papers. Mohammad Rababeh obtained more than $2 million in such loans, and the losses to the lenders could be as much as $1 million. Baltimore pleaded guilty to the conspiracy on June 24, 2008, and was sentenced September 26, 2008, to 12 months in prison.
Three Palm Beach County Residents Sentenced for Mortgage Fraud
On December 4, 2008, in Miami, Fla., three Palm Beach County residents were sentenced for their participation in a mortgage fraud scheme totaling more than $6.5 million. Defendant Lauren Jasky was sentenced to 36 months’ imprisonment, to be followed by 5 years of supervised release. On December 1, 2008, defendant Ralph Michel, a/k/a Ralph Duverneau, was sentenced to 30 months’ imprisonment, to be followed by 4 years of supervised release. On November 19, 2008, defendant Berry Louidort was sentenced to 37 months’ imprisonment, to be followed by 5 years of supervised release. All three defendants previously pled guilty to conspiracy to commit bank fraud and mail fraud. Defendants Michel and Louidort also pleaded guilty to a money laundering charge. According to court documents and court testimony, this investigation began with an audit conducted by the Florida Office of Financial Regulation into 24 sub-prime mortgage loans initiated by Compass Mortgage Service, Inc. (“Compass Mortgage”), of Boca Raton, FL. The initial audit revealed that the loans included excessively large fees paid to defendants Berry Louidort and Ralph Michel. The fees, ranging from $29,000 to $650,000, were described as marketing and/or assignment fees. In fact, however, the fees were kickbacks to defendants Louidort and Michel based on inflated sales prices. The audit also revealed that the majority of the suspect loans were originated by defendant Lauren Jasky, senior vice president of Compass Mortgage. To execute the scheme, the defendants fraudulently bought and sold residential property in Palm Beach County, FL. Defendants Louidort and Michel received large assignment and marketing fees and Jasky received mortgage brokerage fees. The defendants prepared fraudulent loan applications for the purchasers and submitted them to the lenders. The applications included materially false information about the borrowers’ employment verification, income, funds on deposit, and rent history.
Professional Football Player Who Used Teammate’s Identity for Loans Sentenced in California
On November 7, 2008, in San Diego, Calif., Benjamin Leon Coleman, a former football player with the San Diego Chargers, was sentenced to 36 months and one day of imprisonment and ordered to pay $240,502 in restitution. Coleman pleaded guilty in December 2007 to 10 counts of submitting false loan applications, one count of using a false social security number, one count of aggravated identity theft, and two counts of tax evasion. In his guilty plea, Coleman admitted that he used a former teammate’s identity to get loans, lines of credit, and credit cards. He used a variety of corporate entities and identities and provided false financial and other information to banks in connection with his loan and credit applications. Coleman caused losses of more than $290,000 to the banks and used the loan and credit card proceeds to pay personal expenses. Coleman did not file tax returns for 2005 and 2006 and admitted that he willfully evaded paying taxes on his income.
Owner of Funding Corporation Sentenced on Income Tax and Bank Fraud Charges
On November 4, 2008, in Cincinnati, Ohio, Toby Groves was sentenced to 24 months in prison, followed by three years of supervised release, and ordered to pay $299,997 in restitution to the Internal Revenue Service (IRS) for income tax evasion and bank fraud. According to court documents and testimony, Groves owned a business known as Groves Funding Corporation (Groves Funding). Beginning in June 2003 and continuing through 2005, Groves provided loans to individuals who were purchasing residential real estate through his business. Groves obtained the funds to make these residential real estate loans from a line of credit supplied by a financial institution to Groves Funding. Groves Funding sold these loans to other financial institutions and Groves profited through the sale of these loans. Groves used Groves Funding to obtain loan proceeds from lenders at interest rates and in greater total sum than he would have otherwise been able to obtain. He submitted loan applications and real estate closing packages to lenders that contained false statements and omissions with the intent of inducing the lenders to provide funding. At times, Groves provided lenders with fraudulent income tax returns that were never filed with the IRS. Additionally, on his 2003 federal income tax return, Groves falsely reported his taxable income was $1,718 and that he owed no federal income tax. In his plea agreement, Groves admitted that the tax loss to the IRS for 2003 was $111,409. Also pursuant to his plea agreement, Groves agreed that there would be an additional total tax loss to the IRS for the 2001 and 2002 tax years.
Second Tucson Defendant Pleads Guilty to $13 Million Mortgage Fraud Conspiracy
On November 3, 2008, in Tucson, Ariz., Carlos Bent was sentenced to 16 months in prison and ordered to pay $867,916 in restitution for wire fraud and engaging in illegal monetary transactions in a $13 million mortgage fraud scheme. Bent pleaded guilty in January 2007 admitting that he and co-defendant Frank Padilla solicited the owners of residential real estate that had not been sold despite being on the market for substantial periods of time, and convinced these owners to use them as sales agents. The owners were told that the properties were worth more than the listed price, and that a buyer would be found if the owners agreed to a “net listing” of the property wherein Padilla and Bent would retain any sales proceeds above the owner’s asking price. Bent and Padilla found “straw buyers” to be the purported purchasers of the properties and paid the “straw buyers” a substantial fee for their fraudulent participation. Bent, Padilla and others created fraudulent documents, including false employment verifications, bank statements, mortgage loan applications and contractor’s licenses in order to qualify the “straw buyers” for 23 mortgage loans from financial institutions totaling over $13 million in order to purchase 21 residential properties (two properties were each sold twice). Minimal, if any, mortgage payments were made on the properties and they were allowed to go into default and foreclosure. Finally, the defendants negotiated 33 checks totaling $1.3 million from title companies for currency. Every check totaled more than $10,000 and represented proceeds of the fraud. Padilla received a 24 month prison sentence in June 2008 and was ordered to pay $1.1 million in restitution.
Hedge Fund Manager Sentenced to 60 Months
On October 20, 2008, in San Diego, Calif., Paul Henrie Levy was sentenced to 60 months in prison in connection with Levy’s participation in a scheme to defraud investors in the Global Money Management (GMM) hedge fund out of approximately $49 million. Levy pleaded guilty in July 2008, to one count of conspiracy to commit mail and wire fraud and to defraud the United States in violation of Title 18, United States Code, Section 371. The indictment charged him with diverting investor funds from the GMM hedge fund for his own personal benefit or entities that he controlled; disseminating false and misleading account statements and partnership tax returns that overstated the performance of the GMM hedge fund; using new GMM investor money to pay fictitious returns to old GMM investors in order to induce those investors to send money to GMM and/or not withdraw funds the investors had already invested; and failing to report the diverted investor funds on his tax returns. Levy was also ordered to pay restitution in an amount to be determined at a later date.
Real Estate Developer Sentenced to 14 Years in $50 Million Mortgage Fraud Scam
On October 3, 2008, in Los Angeles, Calif., Charles Elliott Fitzgerald was sentenced to 168 months in prison and ordered to pay $42.7 million in restitution for masterminding a $50 million mortgage fraud scheme. Fitzgerald pleaded guilty in May 2008 to conspiracy to commit bank fraud and loan fraud; bank fraud; organizing, managing, and supervising a continuing financial crimes enterprise; money laundering; and obstruction of justice. Fitzgerald was jailed in December 2006 when he was arrested and deported by authorities in the Independent State of Samoa, a Pacific island nation to which he fled in June 2003 after two victim banks sued him. According to court documents, Fitzgerald and the others were involved in a wide-ranging and sophisticated conspiracy to defraud federally insured mortgage lenders out of tens of millions of dollars. As part of the scam, the co-conspirators obtained inflated mortgage loans on expensive homes in some of California's most exclusive neighborhoods. Court documents charge that the co-conspirators sent false documentation, including bogus purchase contracts and appraisals, to the victim banks to deceive them into unwittingly funding mortgage loans that were hundreds of thousands of dollars higher than the homes actually cost. Lehman Brothers Bank alone was deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses.
Fiscal Year 2008 - Examples of Financial Institution Fraud Investigations
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