A recent comment from Brandon on the blog post Mortgage Mod Case Results in 10+ Year Sentences stated:

“Couple of small pawns in a much larger game.kristen is a 32 year old first time,non violent offender mother of three.sentanced to over 12 years.not sure how these so called heros sleep at night .Wake The @%*&  Up !!!”

Kristen Michelle Ayala was sentenced to 135 months – 11 years and 3 months –  in prison in connection with a mortgage modification scheme. She is not currently in the custody of the Bureau of Prisons but that site does confirm that she is 32 years old and that her anticipated release date is March 9, 2025.  In the federal prison system, a defendant must serve at least 85% of their sentence which means that Ms. Ayala will serve at least 114 months, over 9 years, in prison.

So, what is it about this particular “white collar” crime that resulted in such a long prison sentence?  I have been writing about these cases for many years and there are a number of factors that influence sentencing that may not be readily apparent to readers.  So, let’s look at Ms. Ayala’s case.

Ms. Ayala pled guilty to one count of conspiracy to commit wire fraud which carries a maximum potential sentence of 30 years in prison. The maximum sentence is not, however, what the defendant will actually receive at sentencing.  The court works off sentencing guidelines which are advisory, not mandatory.  It uses these guidelines to add or subtract from the “base level” of the offense and then comes up with a “guideline range” and the sentence is generally within that range.

Many of the defendants that I have written about have either been convicted of or pled guilty to a significant number of counts and have been sentenced to less than ten years.  Ms. Ayala only pled guilty to one count so, again, what makes this situation different from those?

The sentencing process starts with a Presentence Investigation Report which is prepared by a probation officer.  The defendant is generally interviewed as part of this process. The Presentence Investigation report identifies the potentially applicable guidelines, calculates the offense level and criminal history category, identifies factors relevant to the appropriate kind of sentence or appropriate sentence within the guideline range and identifies any basis for departing from the applicable range (Federal Rule of Criminal Procedure 32).  It may also address the defendant’s history and characteristics along with the impact of the crime on the victim. The Presentence Investigation Report is generally sealed by the Court – which means we do not have access to it to review what the probation officer found or recommended.  In Ms. Ayala’s case, the Presentence Investigation Report was sealed and we do not have access to it.

The defendant can then submit an objection to the Presentence Investigation Report.  The objection might include arguments that the Presentence Investigation Report is incorrect, bring up items of information that were not included and that might reflect positively on the defendant or might argue with the recommended departures or guideline range conclusions or contain letters from character witnesses.  Ms. Ayala filed an objection to the Presentence Report but that document was sealed by the court so it is not possible for us to review the issues and arguments that she raised.

In this case, the government filed a “Position on Sentencing” which laid out its position on the sentence that should be imposed.  It is the only document that gives some insight into the sentence which is not sealed.  Although we cannot view the Presentence Investigation Report or Ms. Ayala’s objections, the Position on Sentencing addresses issues raised in both.

In its Position, the government refers to Ms. Ayala’s plea as related to a “ruthless and pervasive home mortgage modification scheme.” And goes on to state that Ms. Ayala’s actions “targeted extremely vulnerable individuals” and that the victims were “selected for the sole reason that they were in dire financial straits, desperate and literally on the verge of losing their homes.”   The Position states that the government had, at the time it filed the Position, identified 405 victims with a loss amount of approximately $3.8 million.  According to the Position, the victim impact statements showed that the scheme destroyed the lives of the victims, causing divorce, serious health issues and extreme despair to children, parents, combat veterans and people who were struggling.

The Position goes to state that Ayala and her co-conspirators analyzed the victims finances and arrived at a number that was designed to take their very last dollars. According to the Statement of Facts filed with the plea agreement, after the victim responded to a mass mailing that purported to be from a government related entity by calling a toll free telephone number and providing their financial information, another representative would call the homeowner back and tell them that their application for mortgage modification had been approved and that they needed to pay a “reinstatement fee” of thousands of dollars along with three trial payments.  These payments were diverted to the defendants.  No work was ever done to modify the mortgages.  The defendants also impersonated a legitimate federal program – HAMP, which was part of TARP and designed to help distressed homeowners. By doing so, they duped homeowners into thinking the program was legitimate.

The Position states “[w]e know from the investigation that Defendant and the co-conspirators would congratulate one another and demean the recently defrauded victims for their naiveté and stupidity in parting with their money.”

As to the history and characteristics of the defendant, the Position states that Ms. Ayala made poor choices in her early years but got her life together, gained an employable skill, started a family and lived a law abiding life.  However, when her marriage started to deteriorate, she started an affair with her co-defendant, Joshua Sanchez.  Once she was introduced to the scheme, she came on board as a full participant and was extremely helpful in convincing distressed homeowners that the scheme was legitimate.

The Position states that Ms. Ayala’s lack of a criminal history should be taken into account and therefore recommended a sentence of 160 months in prison – at the lower end of the guideline range.

Because the fraud scheme had a devastating effect on the lives of the victims, the Position also includes outtakes from some of the victim impact statements, some of which follow:

“My husband fought in two wars protecting all U.S. Citizens and assuring freedom remains in these United States, including for [Defendant]. He sacrificed his sight, most of his hearing and the ability to walk for this great Nation. I can’t find the words for the atrocities and the pain and suffering that [Defendant] have caused a man who already gave so much for all, even [Defendant].”

“They stole my money [and] I am 83 years old. I cannot many (sic) anymore income. My son & his family became homeless as a result of their actions & we lost the family property.”

“As a result of this crime, me and my children were homeless for a while…My daughter had to be admitted to a pediatric psychiatric unit for two weeks because she was affected when her friends saw all our belongings on the front lawn and we had no place to go….”

“Because of their actions, I went into a deep depression. I had to quit my job because of the stress I was going through….My marriage is not a marriage anymore, because my husband cannot forgive me for this. My family fell apart….The damage they did is unforgivable, I hope justice is done.”

The minute entry from the sentencing hearing indicates that Ms. Ayala requested a reduction for her minor role in the offense, requested a variance sentence of 12 months and 1 day, and requested the court take into account her background and history. The court rejected the request for a reduction based on a minor role and adopted the Presentence Investigation Report.  While Sanchez was sentenced to 151 months, Ms. Ayala received a sentence of 135 months.

In my years of reporting on mortgage fraud, I have discovered a few factors that really impact sentencing.  The first and probably most significant is the existence of real human victims whose lives were destroyed.  When the victim is a financial institution, unless the dollar amount is very high, there is a pattern of convictions or a wide-ranging scheme involving a lot of conspirators, the sentence is generally in the one to five year range.  And it seems, in those cases, that personal difficulties faced by the defendant have a significant impact on the sentence. Cooperation with authorities (pleading guilty, testifying against co-conspirators) also weighs heavily.

But where, as here, lives are permanently and irrevocably impacted as a result of an abuse of trust and confidence and the victims selected are vulnerable and in need of protection, the personal issues and prior ‘good character’ of the defendant seem to be given less weight.  Is it heartbreaking that a 32-year old mother of 3 will spend twelve and a half years in prison?  Yes.  But it is also heartbreaking to the victims.  In the end, it was Ms. Ayala’s decision to enrich herself by engaging with others to take over a million dollars from vulnerable homeowners who thought that they were applying for government assistance through HAMP.

When you stay with a company after you figure out that they are, in fact, a fraudulent scheme and are essentially stealing money from vulnerable people, you make a choice. At that point, you become part of a conspiracy to defraud and you become responsible for the results. It was this decision that ruined the lives of hundreds of people, whether she was doing it for the money, to impress her new boyfriend, because her “success” at her “job” felt good to her, because she needed her paycheck to live, or for any one of a hundred other reasons that people use to justify the purposeful decision to defraud others.  In the end, crime is a choice and Ms. Ayala made that choice.

What is the result when you place, on one side of the scales of justice, the weight of the result of her voluntary choice on her own life and, on the other side of the scales of justice, the weight of the effect of that choice on the 405 victims of her conduct?  Unfortunately for Ms. Ayala, the scales tip rather significantly toward eleven years.

*Ms. Ayala was also ordered to pay $1,217,411.45 in restitution to 404 victims.

 

Martin Calzada, 29, Norwalk, California was found guilty by a federal jury after a four-day trial, of one count of conspiracy to commit mail fraud and eight counts of mail fraud affecting a financial institution.

According to evidence presented at trial, Calzada conspired to defraud homeowners facing foreclosure. Calzada and other employees of Star Reliable Mortgage, which had offices in Bakersfield, Visalia, and Salinas, California, targeted distressed homeowners with a fraudulent “loan elimination” scheme. Between approximately August 2010 and October 2011, Star Reliable charged clients an upfront fee for its services – ranging from $2,500 up to $4,500 – as well as monthly fees, based on false promises that the clients could own their homes “free and clear” as a result of Star Reliable’s services. Clients paid hundreds of thousands of dollars to Star Reliable and at least $300,000 was transferred from Star Reliable into Calzada’s bank accounts. In furtherance of the scheme, Calzada and other employees at Star Reliable filed at county recorders’ offices fraudulent documents on behalf of the homeowner-clients, which purported to replace the legitimate property trustees with fictitious trusts affiliated with the defendant and Star Reliable, all in an effort to “cloud title” and halt or stall the foreclosure process. Additionally, Calzada, and other employees working at his direction told Star Reliable clients to stop paying their mortgages. They also falsely represented that Star Reliable clients had one million dollars in a U.S. government account that could be used to pay-off a homeowner’s mortgage.

Calzada was remanded into custody following the announcement of the verdict. In a related case in December 2014, co-conspirators Juan Ramon Curiel, 38, Visalia, California and Santiago Palacios-Hernandez, 47, Salinas, California, pleaded guilty to conspiracy to commit mail fraud. Curiel additionally pleaded guilty to one count of bankruptcy fraud. They are scheduled to be sentenced by Judge O’Neill on April 10, 2017.

Calzada is scheduled to be sentenced by Judge O’Neill on June 5, 2017. Calzada faces a maximum statutory penalty of 30 years in prison and a $1,000,000 fine. The actual sentence, however, will be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables.

United States Attorney Phillip A. Talbert announced the verdict. The trial was held before United States Chief District Judge Lawrence J. O’Neill.

This case was the product of an investigation by the Federal Bureau of Investigation and the Tulare County District Attorney’s Office. Assistant United States Attorneys Christopher D. Baker and Patrick J. Suter are prosecuting the case.

Anthony J. Atkins, 51, Eufaula, Alabama, was convicted by a Federal Jury after a 5-day trial, of conspiracy to commit bank fraud, four counts of false statements to a federally insured financial institution, bank fraud, and mail fraud affecting a financial institution.

Co-conspirator Bruce A. Houle, 57, Inlet Beach, Florida, pled guilty to conspiracy to commit bank fraud and one count of false statement to a federally insured financial institution.

Co-conspirator Samuel D. Cobb, 37, Destin, Florida, pled guilty to conspiracy, four counts of false statement to a financial institution, and bank fraud.

In 2007, according to court documents and evidence, an individual went to Atkins, the president of GulfSouth Private Bank, and notified Atkins that the individual’s company, which had been loaned $3.4 million, was no longer going to be able to make payments on the mortgage loans issued by GulfSouth Private Bank that had been secured by three condominiums.  In an effort to conceal that the loans were going into default, and instead of recognizing that the $3.4 million in loans were losses to the bank, Atkins devised a scheme to conceal the bad debt.

As a part of the scheme, Atkins and Cobb solicited Houle, Mark W. Shoemaker, Michael Bradley Bowen, and William Blake Cody to take out new loans with the bank to purchase the three condominiums. To persuade Houle, Shoemaker, Bowen, and Cody to engage in the scheme, Atkins and Cobb told these individuals that the loans would be non-recourse, meaning that, if the men defaulted, GulfSouth would have no recourse against them.

Thereafter, Atkins and Cobb caused new mortgage loans and additional lines of credit to be issued for approximately $3.8 million to the men they had solicited. According to the terms of the fraudulent loans issued during the scheme, the men Atkins and Cobb solicited were not required to make any payments on the loans until the loans came due months down the road. These new loans were then used to pay off the old loans that were going into default. Issuing these new loans and new lines of credit created the appearance that the debt was “performing”, which allowed Atkins to avoid having to report the loans associated with the condominiums as bad debt, as required. Further, as a part of the scheme, Atkins and Cobb caused fraudulent security agreements to be prepared that falsely represented that Houle, Shoemaker, Bowen, and Cody were obligated to repay their respective new mortgage loans and lines of credit.

In September 2009, GulfSouth received $7,500,000 in Troubled Asset Relief Program (“TARP”) funds from the United States Treasury. Thereafter, Atkins and Cobb allowed the condominiums that were collateral for the mortgage loans to be sold in short sales, resulting in a loss to GulfSouth. Further, Atkins allowed the deficiencies and the lines of credit to be charged off of GulfSouth’s books and records.

The defendants face a maximum of 30 years in prison for each count. The sentencing hearings are scheduled at the United States Courthouse in Pensacola, as follows:

  • Atkins: May 31, 2017, at 10:30 a.m.
  • Houle: May 31 at 2:00 p.m.
  • Cobb: May 16 at 10:30 a.m.

The jury’s verdict and the guilty pleas were announced by Christopher P. Canova, United States Attorney for the Northern District of Florida.

The case resulted from a joint investigation by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and the Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG).  Assistant United States Attorney Tiffany H. Eggers prosecuted the case.

This bank fraud case is a reminder that my office will vigorously prosecute those who do not conduct ethical transactions, especially financial representatives who abuse their positions of trust,” said U.S. Attorney Canova. “I commend the hard work of the investigators and prosecutors who enforce our federal laws and ensure that justice is served.”

In 2008, at the height of the financial crisis, former GulfSouth Private Bank president Anthony Atkins had a decision to make: tell the truth about the bank’s troubled finances or take intricate steps to criminally conceal millions of dollars in bad loans,” said Christy Goldsmith Romero, Special Inspector General for TARP. “Unlike most bank executives, Atkins chose the latter and, along with former vice president Samuel Cobb, hatched a scheme to hide the loans and make the bank appear healthier than it actually was. GulfSouth then received $7.5 million from TARP, a program designed for healthy banks. But GulfSouth was not a healthy bank and later failed—causing taxpayers to lose their entire investment. SIGTARP will continue to bring justice to bankers who commit bailout-related fraud.”

The Federal Deposit Insurance Corporation Office of Inspector General is committed to working with U.S. Attorneys and law enforcement partners throughout the country in investigating and prosecuting individuals whose fraudulent activities threaten the safety and soundness of our nation’s banks,” said Jason Moran, Special Agent in Charge, FDIC-OIG. “It is particularly troubling when those individuals are bank insiders like Messrs. Atkins and Houle, who violate the public trust, conspire with others, and engage in activities that ultimately cause losses to their banks. Today’s verdict and the associated guilty pleas should deter others from pursuing similar criminal activity.”

Michelle Cabrera, 48, Miami Lakes, Florida, and Pedro Melian, 39, Hialeah, Florida, pled guilty to one count of conspiracy to commit wire fraud related to their participation in a $10 million Florida mortgage fraud scheme. At sentencing, each defendant faces up to thirty years’ imprisonment.

Marco Laureti, 45, Sunny Isles Beach, Florida, and Felix Mostelac, 44, Miami Beach, Florida, were charged by Indictment with one count of conspiracy to commit wire fraud  and multiple counts of wire fraud, for conduct allegedly related to the Florida mortgage fraud scheme, and are awaiting trial.

According to court documents, defendants Laureti, Mostelac, Cabrera and Melian were involved with a $10 million mortgage fraud scheme. Laureti was a former newspaper publisher and owner of Laureti Publishing Company, in addition to being a licensed real estate sales associate and mortgage broker. Mostelac was Laureti’s associate and also the owner of several companies. Cabrera owned Florida Elite Title & Escrow in Davie, Florida and served as the title agent for these transactions. Melian also owned several companies.

According to information presented in court and accompanying documents, the defendants engaged in a fraud scheme involving a condominium complex located at 45 Hendricks Isle, Fort Lauderdale, Florida. Defendants Laureti, Mostelac and Melian made false and fraudulent statements to a financial institution on loan applications and closing statements for the multi-million dollar condominiums. Once the loans were approved, defendant Cabrera, at Laureti’s direction, diverted the loan proceeds to fund the cash the borrower was expected to bring to the property’s closing, as well as diverting additional monies from the loan proceeds to various companies owned by Laureti and Mostelac. Furthermore, according to court documents, Laureti and Mostelac utilized the same scheme on the loan applications and closing statements to purchase their own multi-million dollar residential properties in Miami Beach, in addition to Laureti directing Cabrera to divert funds. The defendants’ scheme defrauded the financial institution of approximately $10 million.

Benjamin G. Greenberg, Acting United States Attorney for the Southern District of Florida and George L. Piro, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, made the announcement. Mr. Greenberg commended the investigative efforts of the FBI. This case is being prosecuted by Assistant U.S. Attorney Randy Katz.

Francisco Aguirre, aka Francisco X Aguirre-Proano, aka Francisco Xavier Aguirre aka Francisco Xavier Aguirre-Proano was indicted by an Arizona State Grand Jury for allegedly stealing $300,000 to $500,000 from 40 families in Arizona. Aguirre is facing felony charges of Conspiracy, Fraudulent Schemes and Artifices, Money Laundering, Illegally Conducting an Enterprise, Mortgage Fraud, Theft, and Forgery

From 2013 to 2015, Francisco Aguirre owned Montecristo Properties, LLC, Montecristo Property Investments, LLC, and San Marino Property Investments, LLC. The indictment alleges Aguirre and his employees defrauded 40 families who wanted to buy homes. Aguirre allegedly made false statements and material omissions to families who believed they were purchasing homes from Aguirre and gave him a down payment. The victims also made monthly payments as mortgage payments only to find out they never owned or had a title to the home.

The other defendants in the case have not yet been released but the indictment also makes reference to Biltmore Property Investments, LLC.

The indictment was announced by Attorney General Mark Brnovich.

Assistant Attorneys General Maura Quigley and Mary Harriss are prosecuting this case.

Matt Garner, appraiser, Lexington, Kentucky, was indicted and charged with conspiracy to commit wire fraud and false statement in a matter within the jurisdiction of an agency of the United States based on allegations that he used unlicensed surrogates to conduct residential real property appraisals under his name and license.

According to the indictment, in 2015, Garner began an illegal and deceptive practice of using uncertified and unlicensed surrogates, including two individuals identified in the indictment as GD and ZG, to perform appraisals and fill out Uniform Residential Appraisal Reports without attributing the reports to those individuals or identifying their involvement.  In most instances, Garner never visited the property.  He paid the surrogates a portion of his appraisal fee.

The indictment further alleges that Garner instructed his surrogates to pretend to be him if questioned by anyone during the appraisal process and he provided them with his own business cards to provide to others, if necessary.

By doing this, Garner was able to greatly increase the number of appraisals he could perform in a given time.

According to the indictment, Garner made the following material statements by signing and submitting the appraisal reports performed by surrogates:

  1.  That he had personally performed the appraisal;
  2. That he had not been assisted by any other person in performing the appraisal;
  3. That he was knowledgeable of and experienced in the market where the property was located.

*CORRECTION:  This article originally stated that Garner was charged with bank fraud.  He was actually charged with violation of 18 USC 371 – conspiracy and the underlying substantive offenses are identified as wire fraud in violation of 18 USC 1343 and false statements in a matter within the jurisdiction of an agency of the United States in violation of 18 USC 1001.

Herzel Meiri, who was indicted on March 16, 2016, on fraud and money laundering charges in connection with a scheme to fraudulently induce distressed homeowners to sell their homes to a company he owned and controlled, was extradited from Ukraine. Meiri had been arrested by Ukrainian authorities on October 27, 2016. He will be arraigned in front of Magistrate Judge Ronald L. Ellis. The case is assigned to United States District Judge Edgardo Ramos. Meiri was the seventh defendant to be indicted in connection with the scheme.

According to the allegations in the Fourth Superseding Indictment, which was unsealed in November 2016, as well as the Complaints previously filed in this action:

Since at least 2013, Meiri and his co-defendants defrauded distressed homeowners throughout the Bronx, Brooklyn, and Queens, New York. Meiri and others falsely represented to the homeowners – some of whom were elderly or in poor health – that they could assist them with a loan modification or similar relief from foreclosure that would allow the homeowners to save their homes. But rather than actually assisting the homeowners, the defendants deceived them into selling their homes to Launch Development LLC (“Launch Development”), a for-profit real estate company owned and controlled by Meiri.

Meiri and others lured victims through Homeowners Assistance Service of New York (“HASNY”), which purported to provide assistance to homeowners who were seeking to avoid foreclosure of their homes. As part of the scheme, Meiri directed employees of Launch Development to solicit owners of distressed properties and invite them to meet with HASNY representatives so that they could learn more about avoiding foreclosure and saving their homes.

When a homeowner arrived at the HASNY office, he or she met with a co-conspirator, who typically advised the homeowner that HASNY could assist him or her with a loan modification. In other cases, the homeowner was advised that a loan modification could not be completed, but that the homeowner could engage in a type of short sale in which the homeowner would sell the property to a third party, Launch Development, and then within approximately 90 days arrange for a relative of the homeowner to repurchase the property from Launch Development. Homeowners were typically advised that they could remain in their homes throughout the entire process. At the closing that followed, a homeowner who had been led to believe that he or she was about to receive a loan modification or transfer the property to a trusted relative was encouraged to sign documents presented by another co-conspirator, which in some cases were blank. Unbeknownst to the homeowners, by signing the documents, they were selling to Launch Development the homes they had hoped to save. Homeowners often were then forced to vacate their homes soon thereafter, and Launch Development re-sold many of the homes, which were purchased at fraudulently deflated prices, for an enormous profit.

In addition, Meiri and a co-conspirator transferred the proceeds of the home sales from Launch Development to other companies Meiri owned and controlled, falsely describing the transfers as, among other things, rent payments. The proceeds were ultimately transferred back to Launch Development or spent on luxury items for Meiri.

Meiri is charged with one count of conspiracy to commit wire fraud and bank fraud and one count of conspiracy to commit bank fraud, each of which carries a maximum term of 30 years in prison. In addition, Meiri is charged with two counts of money laundering, one of which carries a maximum term of 20 years in prison and one of which carries a maximum term of 10 years in prison, and one count of conspiracy to commit money laundering, which carries a maximum term of 20 years in prison.

Meiri will be arraigned in front of Magistrate Judge Ronald L. Ellis. The case is assigned to United States District Judge Edgardo Ramos.

Preet Bharara, the United States Attorney for the Southern District of New York, William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Division of the Federal Bureau of Investigation (“FBI”), Christy Goldsmith Romero, Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”), and Maria T. Vullo, Financial Services Superintendent for the New York State Department of Financial Services (“DFS”), announced the extradition.

U.S. Attorney Preet Bharara said: “Herzel Meiri allegedly concocted a callous scheme to swindle desperate homeowners out of their homes. As alleged, Meiri lied to his victims, who thought that they were getting the financial help they needed but instead were being tricked into signing over their homes. Thanks to our law enforcement partners – the FBI, SIGTARP, and DFS – Meiri is now in U.S. custody and will have to answer for his alleged crimes.”

Assistant Director-in-Charge William F. Sweeney Jr. said: “When desperate homeowners fall prey to false relief schemes, their vulnerabilities are often exploited by those who seek to benefit from their misfortune. As alleged, Meiri’s behavior caused serious damage to struggling families who unknowingly funded his extravagant scheme. The FBI continues to support partnerships within the financial industry and law enforcement as we work together to combat this serious crime.”

Special Inspector General for TARP Christy Goldsmith Romero said: “Herzel Meiri is charged with preying on struggling homeowners trying to avoid foreclosure. Meiri and his co-conspirators allegedly promised victims mortgage modifications when in fact they were swindling them out of their homes. SIGTARP thanks U.S. Attorney Bharara, Superintendent Vullo, and the FBI for their commitment to protecting taxpayers from TARP-related crime.”

DFS Financial Services Superintendent Maria T. Vullo said: “These allegations paint the portrait of a con artist who cold-heartedly preyed on financially distressed homeowners – some of whom are among our most vulnerable – to satisfy his selfish greed. The Department of Financial Services is proud to have worked with our fellow law enforcement partners in helping to bring this defendant to justice.”

Mr. Bharara praised the outstanding work of the FBI, SIGTARP, and DFS for their investigative efforts and ongoing support and assistance with the case.

The prosecution of this case is being overseen by the Office’s General Crimes Unit. Assistant U.S. Attorneys Jaimie L. Nawaday and Andrew Thomas are in charge of the case.

 

Joseph W. Witkowski, 70, former New Jersey lawyer, Flemington, New Jersey, was sentenced to 48 months in prison for participating in a conspiracy that caused lenders to release $40.8 million based on fraudulent mortgage loan applications and laundered the proceeds of the fraud.  Witkowski previously pleaded guilty to an indictment charging him with one count each of conspiracy to commit wire fraud and conspiracy to commit money laundering. U.S. District Judge Joseph H. Rodriguez imposed the sentence in Camden federal court.

According to documents filed in this case and statements made in court:

Witkowski and his conspirators located oceanfront condominiums overbuilt by financially distressed developers in Wildwood Crest, New Jersey; premier real estate in vacation destinations in Georgia and South Carolina; and properties in New Jersey owned by financially distressed homeowners facing foreclosure. They then recruited “straw buyers” – people with good credit scores but lacking the financial resources to qualify for mortgage loans – to purchase those properties.

Witkowski and his conspirators created false documents, including fake W-2 forms, income tax returns, investment statements, and rental agreements, to make the straw buyers appear more creditworthy than they actually were. They also established numerous telephone lines for companies owned by some of the conspirators so that when a lender contacted the telephone number, the conspirators could falsely verify that a straw buyer was employed by the company listed on his or her fraudulent loan application.

Witkowski also caused fraudulent mortgage loan applications in the name of the straw buyers and supporting documents, which attributed to the straw buyers inflated income and assets, to be submitted to mortgage lenders. Once the loans were approved and the mortgage lenders sent the loan proceeds in connection with real estate closings on the properties, Witkowski and his conspirators had some of the funds wired or checks deposited into various accounts that he and his conspirators controlled.

In addition to the prison term, Judge Rodriguez sentenced Witkowski to three years of supervised release and ordered restitution of $13,105570. As part of his plea agreement, he must forfeit $2,412,899, representing the proceeds of the fraud.

U.S. Attorney Paul J. Fishman announced the sentence.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Timothy Gallagher; and special agents of IRS-Criminal Investigation, under the direction of Special Agent in Charge Jonathan D. Larsen, with the investigation leading to today’s sentencing.

The government is represented by Assistant U.S. Attorney Diana Carrig of the U.S. Attorney’s Office in Camden.

Defense counsel: Maggie Moy Esq., Assistant Federal Public Defender, Camden

David Gotterup, 37, Oceanside, New York, was sentenced at the federal courthouse in Brooklyn, New York, to 15 years in prison for leading a loan modification scheme that defrauded distressed homeowners. Gotterup pleaded guilty on June 16, 2016, to conspiring to commit wire, mail and bank fraud. In addition, as part of the sentence, the Court ordered Gotterup to pay $2,500,050 in forfeiture.

According to public filings, from 2008 to 2012, Gotterup and his co-conspirators made a series of false promises to convince more than a thousand distressed homeowners seeking relief through government mortgage modification programs to pay thousands of dollars each in advance fees to numerous companies owned or controlled by Gotterup, including Express Modifications, Express Home Solutions, True Credit Empire, LLC, Green Group Today, Inc., The Green Law Group, Inc., and JG Group. Among other things, Gotterup directed telemarketers and salespeople to lie to distressed homeowner victims by telling them that they were “preapproved” for loan modifications and that they were retaining a “law firm” and an “attorney” who would complete their mortgage relief applications and negotiate with the banks to modify the terms of their mortgages. Contrary to these representations, Gotterup and his co-conspirators did little or no work in connection with these fraudulently induced advanced fees. Gotterup was arrested in October 2015 and has been incarcerated since then.

The sentence was announced by Robert L. Capers, United States Attorney for the Eastern District of New York; William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI); David Montoya, Inspector General, U.S. Department of Housing and Urban Development (HUD); and Christy Goldsmith Romero, Special Inspector General for the Troubled Asset Relief Program (SIGTARP).

In announcing the sentence, Mr. Capers extended his appreciation to the agencies that led the government’s investigation and thanked the U.S. Small Business Administration and the Staten Island District Attorney’s Office for its assistance in the case.

The proceeding took place before United States District Judge Nicholas G. Garaufis.

The government’s case is being prosecuted by the Office’s Business and Securities Fraud Unit. Assistant United States Attorneys Sylvia Shweder and Bonni Perlin are in charge of the prosecution.

 

David W. Schwarz, 60, Orlando, Florida, the former Chief Financial Officer of Cay Clubs Resorts and Marinas (Cay Clubs)  was convicted by a federal jury of conspiracy, bank fraud, and tax offenses after a two-week jury trial before Chief U.S. District Judge K. Michael Moore.

According to evidence at trial, Schwarz was the Vice President and Chief Financial Officer (CFO) of Cay Clubs, which operated purported luxury resorts in the Florida Keys, Clearwater, Orlando, Las Vegas, and elsewhere. Between 2004 and 2008, Cay Clubs grew to more than 1,000 employees and became one of the largest employers in the Florida Keys. Schwarz, who was the one-third owner, and Fred Davis Clark, Jr., a/k/a Dave Clark, 59, formerly a resident of Tavernier, Florida, who was the two-thirds owner, began Cay Clubs in 2004 with fraudulent sales of Cay Clubs units to insiders, using money from Cay Clubs bank accounts to fund the cash to close for purchases, while obtaining mortgage financing from lending institutions. These fraudulent sales were used in marketing materials to falsely show demand for Cay Clubs units and to inflate prices, as Cay Clubs was in reality purchasing units from itself. Proceeds of these sales were diverted to Schwarz and Clark.

Trial evidence established that Cay Clubs raised more than $300 million from approximately 1,400 investors, who purchased units in Cay Clubs developments. Schwarz and Clark failed to remodel the dilapidated properties as they promised investors, while taking millions of dollars out of the company for their own benefit. During the operation of Cay Clubs from 2004 through 2008, Schwarz and Clark diverted more than $30 million in proceeds for themselves, including millions of dollars in cash transfers, that was used to purchase property and other businesses, including a gold mine, a rum distillery, aircraft, and a coal reclamation business.

Trial evidence further showed that as Cay Clubs faced dwindling sales due to its failure to upgrade the dilapidated properties in 2006, Schwarz, Clark, and others engaged in additional fraudulent sales of Cay Clubs units to insiders, including Clark’s family members. These mortgage loans were used to prevent Cay Clubs from defaulting on commercial debts. The documents used to obtain these mortgages included falsified signatures and notary attestations, and had Cay Clubs acting as the seller while Schwarz provided the cash to close so that mortgage loans could be obtained to fund the sales.

During the course of this scheme, Schwarz and Clark did not file any corporate tax return for $74 million in income generated by the Cay Clubs entities. Furthermore, neither Schwarz or Clark filed any individual tax return for these years until after an investigation of Cay Clubs by the U.S. Securities and Exchange Commission (SEC). In 2010 and 2011, Schwarz filed false individual tax returns for tax years 2004, 2005 and 2006, respectively, in which he substantially underreported his income for these tax years and concealed his receipt of millions of dollars in proceeds.

Schwarz was convicted of conspiracy to commit bank fraud, in violation of 18 U.S.C. § 1349, two counts of bank fraud, in violation of 18 U.S.C. § 1344, and one count of interference with the administration of the IRS, in violation of 26 U.S.C. § 7212(a). Schwarz faces a statutory maximum of 30 years in prison for each of the conspiracy and bank fraud offenses, and 3 years for the tax offense. Sentencing is scheduled for May 1, 2017, at the federal courthouse in Key West, Florida.

On December 11, 2015, Clark was convicted by a federal jury in connection with related bank fraud charges and obstruction of the SEC. He was sentenced on February 21, 2016, to 40 years in prison by U.S. District Judge Jose E. Martinez. Former Cay Clubs sales executives Barry Graham, 59,  formerly of Ft. Myers, Florida and Ricky Lynn Stokes, 54, formerly of Ft. Myers, Florida, previously pled guilty to conspiracy to commit bank fraud in related cases and were sentenced to 60 months, and 30 months, respectively.

G. Greenberg, Acting United States Attorney for the Southern District of Florida, Kelly R. Jackson, Special Agent in Charge, Internal Revenue Service, Criminal Investigation (IRS-CI), and Timothy Mowery, Special Agent in Charge, Federal Housing Finance Agency, Office of Inspector General (FHFA-OIG), made the announcement.

Mr. Greenberg commended the investigative efforts of the IRS-CI and FHFA-OIG, and the extensive assistance of the SEC’s Miami Regional Office. This matter is being prosecuted by Assistant U.S. Attorneys Jerrob Duffy, James V. Hayes, and Alison Lehr.

Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.