Michael Barnett, real estate developer, pled guilty to conspiring to defraud lenders and make false statements to HUD in connection with his development of Vineyard Commons, a luxury residential complex in Ulster County, New York.
According to Barnett’s admissions in court during his plea allocution and the allegations made in the Superseding Indictment:
Barnett, who was the developer of Vineyard Commons, sought kickbacks and investments from subcontractors and vendors on the project and made false statements to the project’s lender so that he could draw down on the project’s line of credit. Barnett arranged with two executives of a vendor who provided rough carpentry and lumber supplies on the project (the “Lumber Company”) to have the Lumber Company pay Barnett a kickback in exchange for Barnett’s award to the Lumber Company of the Vineyard Commons contract, as well as future business on other developments Barnett was planning. To raise funds for the kickback, Barnett and the two Lumber Company executives agreed that the Lumber Company would inflate its bid for labor and materials by approximately $865,000.
Barnett and the Lumber Company executives intended that the kickback would be funded unwittingly by the construction lender, and ultimately by HUD through its guaranty of the construction loan, through the submission of false and inflated requests to draw down the construction loan.
In January 2010, the Lumber Company made a partial kickback payment of $200,000 to Barnett, and the Lumber Company executives disguised the transaction on the Lumber Company’s books by making it appear to be a customer rebate payable to a company controlled by Barnett that was not involved in the development of Vineyard Commons. Barnett then used the $200,000 as a partial payment of an obligation he had to the general contractor on Vineyard Commons.
Barnett also solicited subcontractors and vendors on the Vineyard Commons project, including the Lumber Company, to provide labor and materials to build a pool house at his home. Some of these subcontractors and vendors, including the Lumber Company, agreed to do so.
Finally, Barnett submitted false invoices to the construction lender in order to enrich himself fraudulently by drawing down the loan.
Barnett faces up to five years in prison, a fine of up to $250,000 or twice the gross loss or gain from the offense, an order of $1,334,620 in restitution, and an order to forfeit $200,000.
The guilty plea was announced by Preet Bharara, the United States Attorney for the Southern District of New York. Mr. Bharara thanked the Department of Housing and Urban Development, Office of the Inspector General, for its outstanding work on the investigation.
Mr. Bharara said: “Michael Barnett admitted today to engaging in a fraudulent scheme to defraud both his construction lender and HUD in order to receive hundreds of thousands of dollars in kickbacks. Thanks to the investigative efforts of the HUD Inspector General’s Office, Barnett will now be made to pay for his criminal conduct.”
The case is being handled by the Office’s White Plains Division. Assistant United States Attorneys Michael Maimin and James McMahon are in charge of the prosecution.