Su Chu Chou “Terry” Cheng, Walnut Creek, California, and Chung Li “George” Cheng, Walnut Creek, both Northern California real estate investors, have agreed to plead guilty for their role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California.
Felony charges were filed in the U.S. District Court for the Northern District of California in Oakland against the defendants.
To date, as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California, 49 individuals have agreed to plead or have pleaded guilty.
Between May 2008 and January 2011, according to the court documents, George and Terry Cheng conspired with others not to bid against one another, and instead designated a winning bidder to obtain selected properties at public real estate foreclosure auctions in Alameda and Contra Costa counties. George and Terry Cheng were also charged with conspiring to use the mail to carry out a scheme to fraudulently acquire title to selected Alameda and Contra Costa County properties sold at public auctions, to make and receive payoffs, and to divert money to co-conspirators that would have otherwise gone to mortgage holders and other beneficiaries by holding second, private auctions open only to members of the conspiracy. The department said that the selected properties were then awarded to the conspirators who submitted the highest bids in the second, private auctions. The private auctions often took place at or near the courthouse steps where the public auctions were held.
The department said that the primary purpose of the conspiracies was to suppress and eliminate competition and to conceal payoffs in order to obtain selected real estate offered at Alameda and Contra Costa County public foreclosure auctions at non-competitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner. These conspirators paid and received money, according to the court documents, that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties, and, in some cases, the defaulting homeowner.
A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.
The Department of Justice announced the guilty pleas.
“The Antitrust Division continues to vigorously pursue and prosecute those who rig bids and commit fraud at real estate foreclosure auctions,” said Brent Snyder, Deputy Assistant Attorney for the Antitrust Division’s criminal enforcement program. “The division is committed to working closely with its law enforcement partners to ensure that these real estate auctions are fair and open so that consumers will benefit from competition.”
“These charges demonstrate our continued commitment to investigate and prosecute individuals and organizations responsible for the corruption of the public foreclosure auction process,” said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field Office. “The FBI is committed to work these important cases and remains unwavering in our dedication to bring the members of these illegal conspiracies to justice.”