Numerous participants in an expansive mortgage fraud scheme were sentenced to prison on Monday, October 27, 2014, and Tuesday, October 28, 2014, by Chief United States District Judge James C. Dever, III. The defendants were involved in a conspiracy to defraud numerous banks and lenders using straw buyers resulting in mortgage loan disbursements exceeding $20 million, $5 million in loan proceeds, and losses exceeding $1 million.
Chief Judge Dever also collectively ordered more than $10 million in forfeiture and restitution judgments against the defendants. Those sentenced by the Court included multiple real estate developers, a closing attorney, two mortgage brokers, and a real estate broker.
Those sentenced included former mortgage broker Dexter Tirrell Jones, 42, Raleigh, North Carolina; developer Ricky Lamont Congleton, 43, Zebulon, North Carolina; closing attorney Phillip Graham Rose, 42 Raleigh; developer and former mortgage broker Vincent Maldini, 46, Seabright, New Jersey; developer Johnny Ray Peele, 43, Wake Forest, North Carolina; Joseph Carl Hollis, 35, Raleigh; developer Dwayne Thomas Hall, 49, Wake Forest, and former real estate broker, Treshell Mayo Herndon, 39, Raleigh. Jones, Congleton, Rose, Maldini, Peele, Hall, and Herndon, were each charged in a one-count criminal information with Conspiracy to Commit Bank and Wire Fraud in violation of Title 18, United States Code, Section 1349. Hollis was charged with Conspiracy to Commit Mail, Wire, and Bank Fraud, in violation of Title 18, United States Code, Section 371.
The charging documents collectively allege that between 2003 and 2009, Congleton, Herndon, Peele, Hall, Maldini, Jones, Hollis, Rose, and others known to the United States Attorney, were involved in a conspiracy to defraud numerous banks and lenders in the United States, resulting in mortgage loan disbursements exceeding $20 million, $5 million in loan proceeds, and losses exceeding $1 million. The conspiracy further resulted in substantial losses to the United States Department of Housing and Urban Development (HUD) through its Federal Housing Administration (FHA) program.
The charging documents indicate that various developers in the scheme, including but not limited to Congleton, operating through Triple R Enterprises, LLC; Herndon, operating through Herndon & Herndon Enterprises, LLC; Hall, operating through Dwayne T. Hall Builders; Peele, operating through P.A.P’s Custom Home Builders, LLC and C and P Custom Homes, LLC; and Maldini, operating through NY Construction, LLC, unlawfully profited from the sale of properties purchased or developed by the conspirators to individuals who did not have the financial means to purchase the properties, identified in the charging documents as straw buyers. To execute the scheme, Congleton, Herndon, Hall, Peele, Maldini, and others involved in the scheme referred to as “Builders”, would cause entities owned or controlled by them to purchase and develop a property for quick resale. The builders caused individuals, referred to herein as “Intermediaries,” to locate individuals who were willing to allow their name and credit to be used to purchase properties from the Builders. The Intermediaries, including but not limited to Hollis, Maldini and then mortgage broker, Jones, assisted the straw buyers to complete a loan application with a lender. For their services to the Builders, the conspirators paid the Intermediaries a kickback, or lump sum of cash, from the loan proceeds used by the straw buyers to purchase the properties from the Builders.
Conspirators enticed the straw buyers to participate in the scheme by making certain promises and representations including, but not limited to the following: (1) The straw buyers would be paid a sum of cash for purchasing the properties, (2)the straw buyers would not be required to make a down payment, (3) the straw buyers were told that the homes would be rented and the rental income would be used to pay the mortgage,(4) the straw buyers would not be required to make interest payments on the mortgage loans utilized to purchase the properties from the Builders.
Congleton, Herndon, Hall, Peele, Maldini, and other Builders executed contracts to sell properties to the straw buyers for their appraised value, but set aside 15 to 20% of the sales price to use as the straw buyer’s down payment, and to pay kickbacks to the straw buyers and others participating in the scheme. The Builders further obtained and caused others to obtain cashier’s checks from accounts owned or controlled by the Builders to cover the down payment obligations of the straw buyers. The cashier’s checks were written to make it appear to lenders and banks that the straw buyers were providing the down payment funds when, in fact, such funds came from the Builders. These cashier’s checks were given to a closing attorney who handled the sale of the property from the Builder to the straw buyer.
Raleigh attorney Rose served as the closing attorney on some, but not all, real estate transactions between Builders and straw buyers that were funded by banks and mortgage lenders in the scheme. In connection with the transactions involving the Builders and straw buyers, Rose created and executed, and had the buyers and sellers execute, HUD-1 settlement statements that falsely indicated that the borrower brought cash to the closing when, in fact, as Rose knew, the cash was provided by the Builders, including Congleton, Herndon, Hall, Peele, Maldini, and others. Rose and his staff transmitted the false HUD-1 settlement statements via mail and interstate wires to banks and mortgage lenders who relied upon them in funding the transactions. The Builders and straw buyers executed the HUD-1 settlement statements reflecting that the straw buyers were making the down payment on the properties, when in fact, the down payments were made by the Builders.
Because of the foregoing actions, banks and other lenders were deceived into disbursing loan proceeds to fund the purchase of the properties from Congleton, Herndon, Hall, Peele, Maldini, and other Builders. The banks and lenders issued loans they either would not otherwise have made, or issued loans on terms they would not otherwise have authorized, had the Builders and others not concealed the true terms of the transactions, the actual qualifications and intentions of the straw buyers, the promises and representations made by the Builders and others to the straw buyers, and the false down payments of the straw buyers as reflected on the HUD-1 settlement statements.
Rental income was collected and sometimes not forwarded to pay the mortgage, as promised. The Builders also did not always make interest payments on loans issued to the straw buyers. As a result of the scheme, straw buyers were left accountable for loans that they did not have the financial means to repay, and banks were forced to initiate foreclosure proceedings and sell the properties at a loss.
Maldini was a former mortgage broker who participated in the scheme as a middleman and a developer from 2005 to 2009. Law enforcement examined at least 22 transactions involving 4 straw borrowers. At sentencing on Monday, the Court ordered Maldini to serve 60 months in federal prison, followed by 5 years of supervised release, and to make restitution to 11 lenders in the amount of $667,859.
Congleton was a real estate developer who participated in the scheme as a builder and a recruiter from 2004 to 2009. Law enforcement examined at least 49 transactions, spread across 20 straw borrowers and 18 lenders. Ultimately, the court ordered Congletonto serve 66 months in federal prison, followed by 5 years of supervised release. Congleton was further ordered to pay $1,123,459 to the victims of his crime, and another $3,253,142 in the form of a criminal forfeiture judgment consisting of cash and real estate tied to the offense.
Jones was a mortgage broker who participated in the scheme as a recruiter and intermediary from 2003 to 2009. Law enforcement examined at least 67 transactions involving 33 straw buyers and 24 victim lenders. Ultimately, the court ordered Jones to serve 30 months in federal prison, followed by 5 years of supervised release. The court further ordered Jones to pay restitution of $1,367,129 to the victims of his offense.
Rose was an attorney who participated in the scheme as a closing attorney from 2002 to 2009. Following a search of his law office in 2012, law enforcement examined 98 fraudulent real estate transactions closed by Rose for various Builders involved in the scheme. The transactions involved 46 straw borrowers and 28 lenders. The Court sentenced Rose to 42 months in prison, followed by 5 years of supervised release. The Court also ordered Rose to pay $1,589,298 to the victims of his offense.
Peele was a real estate developer and recruiter for the scheme from 2007 to 2008. Law enforcement examined 14 transactions in which Peele was a participant. Those transactions involved 3 straw borrowers, 13 victim lenders, and resulted in approximately $1.6 Million in gross, fraudulent proceeds. The Court sentenced Peele to serve 30 months in prison, followed by 5 years of supervised release. The Court also ordered Peele to pay $728,244 in restitution to the victims of his offense, as well as the forfeiture of certain real estate constituting fraudulent proceeds of the offense.
Hall was a real estate developer who participated in the scheme from 2004 to 2007. Law enforcement examined 38 transactions which involved 22 straw borrowers and 20 victim lenders. Ultimately, the Court ordered Hall to serve 39 months in federal prison, followed by 3 years of supervised release. The Court further ordered Hall to pay restitution to his victims in the amount of $1,214,326, and the criminal forfeiture of $7,278,558.00 dollars in cash proceeds from the offense.
Herndon was a real estate broker and wife of a developer who participated in the offense from 2003 to 2008. Law enforcement examined 21 transactions wherein Herndon signed false HUD-1 settlement statements on behalf of her real estate company at closing. Herndon’s fraudulent transactions involved the use of 16 straw borrowers affected 12 victim lenders. The Court ordered Herndon to serve 33 months in prison, followed by a 5 year term of supervised release. The Court further ordered Herndon to pay restitution of $1,059,719 to the victims of her offense, as well as the criminal forfeiture of several million dollars in gross criminal proceeds.
Hollis participated in the scheme first as a straw buyer, and later as a recruiter. The Court ordered Hollis to serve a 5 year term of probation which included an 18 month term of house arrest. The Court further ordered Hollis to pay $198,500 to the victims of his offense.
The United States Attorney’s Office announced the sentences.
Investigation of this case was conducted by the Federal Bureau of Investigation, the United States Department of Housing and Urban Development Office of the Inspector General, the Federal Deposit Insurance Corporation Office of the Inspector General, and the Internal Revenue Service Criminal Investigation. Other law enforcement partners also assisted in the investigation, including the United State Marshals Service and the Raleigh Police Department. Assistant United States Attorney William M. Gilmore represented the United States.
“Mortgage fraud impacts the financial stability of our country’s housing markets. These individuals manipulated programs that make it possible for others to live the American dream of owning their own homes. The FBI and our law enforcement partners will expose these type of complex fraud schemes and ensure those responsible are held accountable for their crimes,” said John Strong, Special Agent in Charge of the FBI in North Carolina.
“The Federal Deposit Insurance Corporation – Office of Inspector General is committed to its partnerships with others in the law enforcement community as we address mortgage fraud cases throughout the country. The American people need to be assured that their government is working to ensure integrity in the financial services and housing industries and that those involved in criminal activities that undermine that integrity will be held accountable,” commented the Federal Deposit Insurance Corporation Inspector General Jon T. Rymer.
“We recognize the negative impact that mortgage fraud has on our economy and on our communities. With actions like those announced today, a very clear message is sent: if you don’t operate within the boundaries of the law, we will not hesitate to act. We will continue to work with our law enforcement partners to ensure the US Mail is safe and not used to further schemes like this”, said Inspector in Charge Keith Fixel, US Postal Inspection Service.
“The Federal Deposit Insurance Corporation (FDIC) Office of Inspector General is pleased to join the U.S. Attorney’s Office and our law enforcement partners in announcing these sentencings. The numerous subjects involved in these fraudulent schemes are now facing the reality that those who cause harm to FDIC-insured institutions and undermine the integrity of the Nation’s housing industry will be held accountable.”
Nadine E. Gurley, Special Agent in Charge for the U. S. Department of Housing and Urban Development, Office of Inspector General said, “HUD’s Office of Inspector General is dedicated to protecting HUD from individuals seeking to defraud the Federal Housing Administration (FHA) insurance fund. The sentences announced today is a reminder to citizens that we will continue to investigate mortgage industry professionals who attempt to defraud our programs for their own personal enrichment. This partnership between the U.S. Attorney’s Office, HUD’s Office of Inspector General and law enforcement partners, has helped demonstrate to taxpayers that those who seek to unlawfully profit by defrauding HUD programs will be vigorously prosecuted.”
“This case clearly demonstrates the commitment of IRS Criminal Investigation to aggressively pursue individuals engaged in mortgage fraud in North Carolina,” said Special Agent in Charge Thomas J. Holloman III. “Mortgage fraud destroys neighborhoods and hurts innocent families. IRS Criminal Investigation is committed to combating mortgage fraud and other financial crimes to protect the American homeowner and the national economy.”