Ayman Shahid, 39, Danville, California, pleaded guilty in federal court in Oakland, California to conspiracy to commit bank fraud. Shahid is the most recent and highest placed individual charged by the Northern District of California U.S. Attorney’s Office as a result of a wide-ranging investigation by the FBI into mortgage fraud in connection with the sale of homes by Discovery Sales, Inc. (DSI), and its affiliates.
Shahid, was the president of DSI, which was the sales arm of affiliated residential construction companies, including Discovery Home Builders and Albert D. Seeno Construction Co. According to Shahid’s plea agreement, DSI was created to sell new homes built by Discovery Builders, Inc. (“DBI”), Albert D. Seeno Construction Co., Inc. (“AD Seeno”), and other entities affiliated with Albert Seeno III and the Seeno family. The homes were built in developments throughout the East Bay Area of California, including in Contra Costa and Alameda Counties.
In connection with his plea agreement, Shahid admitted he conspired with others to fraudulently cause bank underwriters to approve mortgage loans for unqualified buyers during the height of the financial crisis. From 2006 to 2008, when Shahid was DSI’s vice president, buyers with little or no money of their own were induced to purchase homes at prices that were inflated through the use of financial incentives. The buyers were not required to possess or post any of their own money when buying a home; DSI, the builders, and their affiliates provided money to buyers to make down payments. Further, DSI inflated the sale price of the new homes by offering significant cash and other incentives to new home buyers. The primary purpose of the price inflation was to support a large line of credit maintained by the builders; the new homes and the property on which the homes would be built collateralized the line of credit.
Shahid’s plea agreement explained that it was important to the scheme to maintain inflated property values because if the home and property values dropped, the value of the collateral would drop and the line of credit would be put at risk. Specifically, the line of credit could be reduced or terminated, or additional collateral would be required to secure the line of credit.
Shahid’s plea agreement explains that DSI made loans that were secured by homes that were in some cases worth less than the loan amount and that DSI did not make an effort to determine the true value of these homes. Shahid admitted he and others took steps to ensure information that would reflect poorly on the value of the homes was kept out of bank loan files. Specifically, Shahid ensured the details of the incentives that were being given to specific buyers would not appear in the bank loan files because the loan-to-value ratio would not support the requested loan on the inflated sales price of the home. If the incentives appeared in the bank loan files, Shahid explained, the loan underwriters would likely reject the loans. Accordingly, Shahid instructed DSI employees not to inform appraisers of the incentives being given to buyers.
Over 325 Seeno and Discovery homes sold during the period 2006 – 2008 involved the use of incentives, amounting to sales in excess of $200 million. Shahid agreed that the losses that resulted from foreclosures or short sales on these homes were approximately $75 million; Fannie Mae and Freddie Mac, which purchased mortgage loans used to pay for Seeno and Discovery Homes, lost almost $3.5 million.
Shahid was charged in April 2014 with one count of bank fraud conspiracy, in violation of 18 U.S.C. § 1349 and 17 individual counts of bank fraud, in violation of 18 U.S.C. § 1344. Pursuant to the plea agreement, he pleaded guilty to the lead conspiracy count, a violation of 18 U.S.C. §§ 1344 and 1349, which encompassed the conduct alleged in the remaining counts.
“Shahid and his coconspirators were responsible for saddling the banking system with dozens of fraudulent mortgage loans without regard for the damage those loans would cause to individual home buyers, downstream investors, and, ultimately, the U.S. economy as a whole,” commented U.S. Attorney Melinda Haag. “Shahid fraudulently inflated the price of homes purchased by individuals who were unable to pay their mortgages in the long run. By doing this to serve their own narrow economic interests, Shahid, and actors like him, contributed to the housing bubble.”
FBI Special Agent in Charge David J. Johnson said, “The actions of Ayman Shahid, certain sales managers and others directly contributed to one of the most significant housing and financial crises of recent memory. While this case was extremely complex, the FBI and Department of Justice built this case, brick by brick, from low-level employees all the way up to the president of the company. We will continue to pursue executives and corporations who fraudulently took advantage of the country’s financial turmoil for their own corporate gain.”
Federal Housing Finance Agency Office of Inspector General Special Agent in Charge Leslie DeMarco stated, “Shahid participated in a fraudulent scheme involving over $200 million in mortgage loans, many of which ultimately defaulted, to the detriment of Fannie Mae, Freddie Mac and the American taxpayers. We are proud to support our law enforcement partners in investigating and prosecuting this case.”
Internal Revenue Service Criminal Investigation Acting Special Agent in Charge (IRS-CI) Thomas McMahon also participated in making the announcement.
Sales managers for Seeno properties who have been previously charged are Carey Hendrickson and Jason Sterlino. Former Bank of America loan officer Jennifer Xiao, Homecomings Financial underwriter Tony Phan, and independent brokers Sharon Wang, Heather Yin, Miguel Arenas, George Zevada, and Chang Park were also charged as participants in the scheme. All of these defendants have pleaded guilty pursuant to cooperation agreements with the government, except Xiao who is a fugitive.
Because Shahid is cooperating with the on-going FBI investigation, a sentencing date has not yet been scheduled. Shahid is next scheduled to appear in court for a status hearing on December 10, 2015, at 3:00 pm before Judge Yvonne Gonzalez-Rogers. The maximum penalty for conspiracy to commit bank fraud is 30 years in prison, a fine of $1,000,000 or twice the gain or loss, and restitution to be decided by the court. However, any sentence would be imposed by the court only after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
The case is being prosecuted by the Special Prosecutions Unit of the United States Attorney’s office in San Francisco. The prosecution is the result of an investigation by the FBI, with assistance from IRS-CI and FHFA-OIG.