Derrick Phelps, 44, Katy, Texas, who owned and operated two now-defunct mortgage industry businesses in the Las Vegas, Nevada area, Cynthia Phelps, 34, his wife, and Linda Mack, 49, North Las Vegas, Neveada, an escrow officer, were indicted by a federal grand jury on conspiracy and bank fraud charges in relation to an $83 million mortgage fraud scheme.
David Phelps, former owner of Investors Realty and Enterprise Mortgage Services, both in Henderson, Nevada, his wife and Mack are charged with one count of conspiracy to commit bank fraud, mail fraud and wire fraud and seven counts of bank fraud. They are scheduled to make an initial appearance before U.S. Magistrate Judge Foley on Friday, March 22, 2013, at 3:00 p.m. to answer the charges. If convicted, they face up to 30 years in prison for each count and fines of up to $1,000,000 per count.
According to the indictment, from about January 2003 to November 2006, the defendants devised a scheme to defraud federally insured financial institutions through the use of straw buyers, inflated housing values and false mortgage applications. The defendants solicited straw buyers with good credit ratings to purchase homes in the Las Vegas area. The defendants made offers to purchase the homes above the sellers’ asking prices. In some instances, the defendants caused straw buyers to purchase multiple houses at or about the same time, so that the purchases would not show up on their credit report and the lenders would not be aware of the other purchases. The defendants then caused false information to be placed in the straw buyer’s mortgage loan application and other documentation concerning the buyer’s income and intent to occupy the home.
Once the loans were approved, the defendants caused the sellers to agree that part of the excess funds be redirected to the buyers under the pretense of making upgrades and repairs to the properties. The defendants intentionally concealed from the financial institutions the fact that they were receiving part of the loan disbursements for their own use and benefit. The defendants defaulted on the mortgage loans which caused the properties to go into foreclosure. Using this scheme, the defendants purchased approximately 233 properties and caused losses to the financial institutions greater than $30 million.
Daniel G. Bogden, United States Attorney for the District of Nevada, made the announcement.
The case is being investigated by the United States Postal Inspection Service, and is being prosecuted by Assistant U.S. Attorneys Sarah E. Griswold and Brian Pugh.
This case was handled in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
An indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.
“We continue to work with our law enforcement partners on the investigation and prosecution of mortgage fraud in Nevada,” said U.S. Attorney Bogden. “Since the inception of our mortgage fraud program in the spring of 2008 and through the end of 2012, about 213 persons have been charged with federal mortgage fraud crimes in Nevada. Most of those individuals were convicted and are in prison.”