Patrick J. Belzner, a/k/a Patrick McCloskey, 45, Selbyville, Delaware, was sentenced by U.S. District Judge J. Frederick Motz to 15 years in prison followed, by three years of supervised release, on charges of wire fraud conspiracy, wire fraud and tax evasion for his role in a scheme to rip off investors by promising to secure large loans in exchange for substantial sums deposited in an escrow bank account.
Judge Motz also entered an order that Belzner pay $19.805 million in restitution.
According to Belzner’s plea agreement and court documents, from the fall of 2009 through August 2011, Belzner, a home builder, worked for a real estate development business known as the McCloskey Group, which was owned by another home builder named Brian McCloskey. During that time, Belzner conspired with McCloskey; Kevin Sniffen, a Maryland title company attorney; Mervyn Phelan, who held the title of “Senior Underwriter” with a California loan brokerage company named IAG; and Gregory Grantham, a California attorney who was the legal counsel of IAG, to defraud investors through a fraudulent investment scheme.
Specifically, Belzner and the conspirators advised wealthy individuals and investment advisers that in order for the McCloskey Group to obtain large loans for various real estate projects through IAG, it was necessary for the McCloskey Group to deposit substantial sums of money in an escrow bank account to establish that it had cash reserves or “liquidity.” Belzner and his co-conspirators, including Phelan and Grantham, further represented to potential lenders that it was acceptable for the McCloskey Group to borrow these funds. They also represented that the funds would be maintained under the control of Sniffen, a licensed attorney and escrow agent; would not be used for any other purpose; and that the money would be returned to the investor, either upon the funding of the loan or after a specified (and usually relatively short) period of time if the loan did not fund by the expected date. In return for this temporary use of the investor’s funds, Belzner and McCloskey promised to pay potential lenders substantial fees or interest.
Contrary to these representations, Belzner admitted that he instead directed McCloskey to remove the investors’ funds soon after they had been deposited into the escrow account. Belzner and McCloskey then used the stolen funds to pay for their personal and business expenses, as well as to make partial repayments to earlier lenders, to pay fees to some of the victim investors to keep them from demanding the return of their money, and to pay IAG for its supposed work and expenses in attempting to locate financing sources. Belzner also directed McCloskey and others to use some of the stolen escrow funds to make payments to other individuals from whom Belzner alone had borrowed money in the past.
Belzner and his co-conspirators attempted to conceal the fraud by providing lenders with false bank statements reflecting that the funds received were still being held in the escrow account; falsely representing in e-mails and in telephone conversations that the funding of the loans sought by the McCloskey Group and the return of the lenders’ funds was imminent; or by making “extension” payments to lenders in return for being allowed to hold their funds for a longer period than originally promised. Belzner also wrote scripts for other conspirators to use in telephone conversations or written or e-mail communications with the escrow account lenders and their counsel in order to lull them into believing that their funds were safe and would be returned to them as promised.
The court determined that Belzner and his conspirators’ fraudulent scheme caused losses in excess of $19.805 million to more than 26 victim investors.
Belzner also pleaded guilty to evasion of assessed tax payments. In 1995, 1996 and 1998, Belzner stole $1,111,304.78 from his employer at the time, and in 1998, he stole $186,146.71 from another employer, none of which he reported as income on his tax returns for those years. A subsequent IRS audit of those tax years resulted in the assessment of additional taxes, interest and penalties against Belzner of $1,150,935.25 for the 1995 and 1996 tax years and $246,424.50 for the 1998 and 1999 tax years.
Brian McCloskey, 44, Baltimore; Kevin Sniffen, 53, Phoenix, Maryland; Mervyn A. Phelan, Sr., 74, Newport Beach, California; and Gregory E. Grantham, 57, Oceanside, California, have each pleaded guilty to their roles in the conspiracy. In addition, Sean Krondak, Irvine, California, another IAG employee, has pled guilty to a charge of obstruction of justice arising out of IAG’s destruction of incriminating e-mails in response to a federal grand jury subpoena. Grantham and Phelan are respectively scheduled to be sentenced on November 14, 2014 and December 5, 2014, while Krondak and McCloskey are both scheduled to be sentenced on December 12, 2014. Sniffen is scheduled to be sentenced on December 19, 2014.
The sentence was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Stephen E. Vogt of the Federal Bureau of Investigation; and Special Agent in Charge Thomas J. Kelly of the Internal Revenue Service—Criminal Investigation, Washington, D.C. Field Office.
“This lengthy sentence fits the crime,” said U.S. Attorney Rod J. Rosenstein. “This was a longstanding and complex fraud scheme perpetrated by experienced con artists.”
United States Attorney Rod J. Rosenstein praised the FBI and IRS – Criminal Investigation for their work in the investigation. Mr. Rosenstein thanked Assistant United States Attorneys Jefferson M. Gray and Kathleen O. Gavin, who prosecuted the case.
“Throughout a decade of deceit, Patrick Belzner not only defrauded his investors, but also the American tax system,” said Thomas J. Kelly, Special Agent in Charge, IRS Criminal Investigation, Washington D.C. Field Office. “Motivated by pure greed, Belzner created an elaborate scheme to hide his stolen funds and evade paying his tax liability. In cooperation with our federal partners, IRS-CI is committed to holding thieves, such as Belzner, accountable for their misdeeds.”
“Many people think financial crime is victimless, but this case proves that is simply not true. What makes this investigation particularly disturbing is that Mr. Belzner manipulated, lied to and stole from his friends and next-door neighbors. He took money from hardworking, trusting people and then heartlessly flaunted his theft in front of his victims,” stated Steve Vogt, FBI Special Agent in Charge of the Baltimore Division. “Mr. Belzner has shown no remorse for his crimes, and deserves to sit in prison reflecting on what his own greed cost his family and friends.”