Grady Wayne Fricks, 65, Nashville, Tennessee, pleaded guilty to conspiracy charges arising out of a scheme to defraud Cornerstone Community Bank, Dalton, Georgia, using false appraisals, settlement statements and misrepresentations to qualify for more than a million dollars in loans.
In November 2004, Fricks contacted a senior vice president at Cornerstone Community Bank and stated that he needed an $850,000 loan to purchase property in Ringgold, Georgia. Fricks did not reveal that he had already signed a contract to purchase the property for only $425,000. Fricks had done business with that senior vice president for many years before this, both at Cornerstone and at the bank where the employee had worked before joining Cornerstone. And Fricks had allowed the bank employee free use of his condominium at a beach in Florida, five to ten times.
The senior vice president violated Cornerstone’s policies and procedures by not obtaining a copy of the sales contract between Fricks and the seller of the property to verify the contract price. The senior vice president also allowed Fricks to select an appraiser to appraise the property. Fricks paid the appraiser $1,000 to inflate the appraised value of the property so that Cornerstone would approve the $850,000 loan Fricks was seeking. In addition, Fricks gave the appraiser $100 in cash as a “tip.” The appraiser provided Fricks with a fraudulently inflated appraisal report, which stated that the market value of the property was $1,010,000.
Prior to the loan closing, Fricks contacted the senior vice president at Cornerstone and asked, “Do you care if I get some money back at closing?” The senior vice president responded, “What the bank cares about is that the HUD-1 settlement statement shows a sales price of $850,000.”
At the direction of Fricks, a real estate closing agent created two HUD-l settlement statements: a correct one that listed the purchase price of the property as $425,000, and a fraudulent one that listed the purchase price of the property as $850,000. Fricks forged or caused someone else to forge the seller’s signature on the fraudulent HUD-l settlement statement and then caused the fraudulent HUD-1 settlement statement and the fraudulent appraisal report to be submitted to Cornerstone. Cornerstone relied upon the false information provided by Fricks and loaned Fricks $850,000 to purchase the property. Fricks used only half of the loan proceeds for the purpose intended and used the remainder for purposes that were not authorized or approved by Cornerstone.
Approximately two years later, in October 2006, Fricks contacted the same senior vice president at Cornerstone and stated that he wanted to borrow more money against the property. Fricks paid the same appraiser $1,000 to re-appraise the property and once again directed the appraiser to fraudulently inflate its appraised value. Fricks also gave the appraiser another $100 tip. The appraiser provided Fricks with a new appraisal report, which fraudulently stated that the market value of the property was $1,433,000. Fricks caused the new appraisal report to be sent to Cornerstone, knowing that it was fraudulent. The new appraisal was more than 40% higher than the previous appraisal conducted by the same appraiser just two years earlier. As a result of this new appraisal, Cornerstone released the additional collateral pledged by Fricks when the loan was originated in 2004, consisting of five real properties and the guaranty of Fricks Properties, a company owned by Fricks.
In November 2006, in reliance upon the false and misleading information and documents provided by Fricks and his unindicted co-conspirators, Cornerstone loaned Fricks an additional $177,000. Fricks did not repay the loans, and the bank foreclosed on the property.
Fricks pleaded guilty before U.S. District Court Judge Harold L. Murphy. Sentencing for Fricks will be August 14, 2015, at 1:30 p.m.
This case is being investigated by the Federal Bureau of Investigation with the assistance of the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).
Assistant United States Attorney Russell Phillips is prosecuting the case.
“This defendant used his connection with a bank insider to obtain a fraudulently inflated loan,” said Acting U.S. Attorney John Horn. “Fricks’ ability to manipulate people to further his scheme left the bank and its stockholders shouldering the loss.”
Britt Johnson, Special Agent in Charge, FBI Atlanta Field Office, stated: “Bank fraud is not a victimless crime. With this guilty plea, Mr. Fricks will be held accountable for his criminal actions and a clear message sent to others considering such greed based fraudulent acts that this is a serious crime with serious consequences.”
And what happened to the appraiser? I’ll bet nothing. As an appraiser, when you prepare a report for a federally insured institution, you are subject to the same federal laws that that deal with fraud, therefore you should be held just as responsible as anyone else that prepares or signs a fraudulent document. Unfortunately, the DOJ doesn’t see it that way. As they say “after all, an appraisal is just an opinion”.