Archives For Straw Buyer

George Kritopoulos, 50, Salem, Massachusetts, a former self-proclaimed Salem real estate developer has been convicted by a federal jury in Boston in connection with a 10-year mortgage fraud scheme involving at least two dozen fraudulent loan transactions totaling $6.5 million and resulting in more than $3.8 million in losses to lenders.

Kritopoulos was convicted on May 27, 2022, of one count of conspiracy, two counts of wire fraud, six counts of bank fraud, one count of aiding the preparation of a false income tax return and one count of obstruction of justice. U.S. District Court Judge Patti B. Saris scheduled sentencing for Sept. 29, 2022. Kritopoulos was charged in September 2018 along with co-defendants Joseph Bates III and David Plunkett.

From 2006 through 2015, Kritopoulos, Bates and others engaged in a scheme to defraud banks and other financial institutions by causing false information to be submitted to those institutions on behalf of borrowers – people recruited to purchase properties – located primarily in Salem. The properties were usually multi-family buildings with two-to-four units, which the co-conspirators then converted into condominiums. Kritopoulos recruited new borrowers to purchase the individual condominium units, which were also financed by mortgage loans obtained by fraud.

The false information submitted to lenders included, among other things, representations concerning the borrowers’ employment, income, assets and intent to occupy the property. Specifically, the false employment information included representations that borrowers were employed by entities that were, in fact, shell companies “owned” by Kritopoulos and were used to advance the fraudulent scheme. The employment information also included false representations about the income that the borrowers received from the entities, when, in fact, the borrowers received little or no income from them. As a result, the income asserted on the borrowers’ loan applications that Kritopoulos submitted to lenders grossly inflated their true income. The false information also included representations that the recruited borrowers intended to live in the properties that they were purchasing, when the borrowers, in fact, did not intend to do so. Kritopoulos brought newly recruited borrowers to Plunkett, who then prepared tax returns that contained false and inflated income. Some of those tax returns were submitted to lenders in support of the fraudulent loan applications.

Because the borrowers did not have the financial ability to repay the loans, in all but two instances among 21 properties, they defaulted on their loan payments, resulting in foreclosures and losses to the lenders of more than $3.8 million.

In addition, Kritopoulos sought to obstruct the federal criminal investigation into the mortgage fraud scheme by encouraging Bates and Plunkett to make false statements and create false documents he hoped would make the companies appear to have been legitimate.

In October 2018, Bates pleaded guilty to one count of conspiracy, three counts of wire fraud affecting a financial institution, and two counts of bank fraud. A sentencing hearing for Bates has not yet been scheduled by the Court. In February 2019, Plunkett pleaded guilty to one count of bank fraud and one count of aiding in the submission of false tax returns and is scheduled to be sentenced on September 15, 2022.

Mr. Kritopoulos held himself out to be a prominent real estate developer and believed he was above the law. This guilty verdict makes it clear that he is not,” said United States Attorney Rachael S. Rollins. “Mr. Kritopoulos and his co-conspirators thought they could line their pockets by victimizing innocent lenders and borrowers. When the scheme began unraveling, Mr. Kritopoulos attempted to have his co-conspirators create phony documents, but they refused. In an interview, Mr. Kritopoulos lied to investigators. We are committed to holding those who engage in this type of behavior accountable.

This verdict proves that George Kritopoulos is a predator who repeatedly targeted young, financially vulnerable victims and exploited them to pad his own pockets while driving them deeper into debt. He lied to the banks on behalf of those victims and tried to obstruct our investigation,” said Joseph R. Bonavolonta, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division. “Mortgage fraud cases like this one are important to deter would-be fraudsters from acting, and to ensure those who commit fraud, like Kritopoulos, face justice. After all, this type of crime artificially influences home values and threatens the investments of lawful buyers.”

Mortgage fraud, like many financial crimes, creates untold harm to individuals, communities, businesses and the integrity of the financial system,” said Joleen D. Simpson, Special Agent in Charge of the Internal Revenue Service – Criminal Investigation Division, Boston Office. “This guilty verdict is proof of IRS Criminal Investigation’s dedication to protecting the financial health of our communities when they are threatened.”

The charges of bank fraud and wire fraud each provide for sentences of up to 30 years in prison and five years of supervised release. The charge of obstruction of justice provides for a sentence of up to 20 years in prison and five years of supervised release. The charge of conspiracy provides for a sentence of up to five years in prison and three years of supervised release. The charge of aiding the preparation of false tax returns provides for a sentence of up to three years in prison and one year of supervised release. Each charge also carries a fine of $250,000, or twice the gross gain or loss, whichever is greater. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and statutes which govern the determination of a sentence in a criminal case.

U.S. Attorney Rollins, FBI SAC Bonavolonta, IRS CI SAC Simpson and Christina Scaringi, Special Agent in Charge of the U.S. Department of Housing and Urban Development, Office of Inspector General, Northeastern Regional Office, made the announcement today. Valuable assistance was provided by the Salem Police Department. Assistant U.S. Attorneys Victor A. Wild, of Rollins’ Securities, Financial & Cyber Fraud Unit, and Brian M. LaMacchia, of Rollins’ Affirmative Civil Enforcement Unit, are prosecuting the case.

 

 

The Financial Litigation Program (FLP) of the U.S. Attorney’s Office for the Northern District of Ohio collected $333,549.82 in restitution from a defendant convicted of participating in a $40 million mortgage fraud scheme.

According to court records, a notice of judgment satisfaction was approved for Defendant John J. Dubay on Monday, May 23, 2022.  In 2014, Dubay was convicted by a jury of bank fraud and conspiracy to commit bank fraud.  Dubay and others were part of a mortgage fraud conspiracy involving dozens of properties along Florida’s Gulf Coast.  As part of the scheme, Dubay and others acted as straw buyers who made false statements, misrepresentations and other omissions in the mortgage loan application process.

As a result of the scheme, Dubay and others obtained numerous home mortgage loans under false and fraudulent pretenses with a total face value of approximately $40 million, many of which ended up in default and foreclosure.

Dubay was sentenced to prison in September 2015 and ordered to pay $333,549.82 in restitution for his role in the conspiracy.

Acting U.S. Attorney Michelle M. Baeppler made the announcement.

This case was investigated by the FBI.  The financial litigation was handled by Assistant U.S. Attorney Suzana K. Koch.  This case was criminally prosecuted by Assistant U.S. Attorneys Robert J. Patton and Om Kakani.

The U.S. Attorney’s Office is responsible for enforcing and collecting civil and criminal debts owed to the U.S. and criminal debts owed to federal crime victims.  The law requires defendants to pay restitution to victims of certain federal crimes who have suffered a physical injury or financial loss.

While restitution is paid to the victim, criminal fines and felony assessments are paid to the department’s Crime Victims Fund, which distributes the funds collected to federal and state victim compensation and victim assistance programs.

Forfeited assets deposited into the Department of Justice Assets Forfeiture Fund are used to restore funds to crime victims and for a variety of law enforcement purposes.

Philip Abramowitz, 50, Pikesville, Maryland, pleaded guilty yesterday to conspiracy to commit wire fraud in relation to the sale of two Baltimore properties.

According to his guilty plea, from May 2016 to April 2017, Abramowitz and others conspired to defraud two financial institutions by fraudulently obtaining Federal Housing Administration (FHA) loans and property under false pretenses.  Specifically, Abramowitz used his company 163 N. Potomac St., LLC., to facilitate the fraudulent sales of his Potomac Street, Baltimore, Maryland properties.

For example, in May 2016, Abramowitz sold one of his Potomac Street properties (Property 1) to a family member (Relative 1) and entered into an agreement with Relative 1 to purchase the property using an FHA-insured loan.  The FHA is part of the U.S. Department of Housing and Urban Development (HUD) and provides mortgage insurance on loans made by FHA-approved lenders.  To qualify for the FHA-insured loans, the buyer must use the residence as their primary residence, disclose any familial or business relationship between the seller and buyer, and disclose the source of the money the buyer intends to use for the down payment and closing costs.

As stated in his guilty plea, Relative 1 applied for and received a $294,566 FHA-insured loan with a mortgage company (Mortgage Company 1) by falsely representing Abramowitz’s bank account records as his own.  Relative 1 and Abramowitz also concealed their familial relation from Mortgage Company 1 by submitting false company filings during the loan application process, having Abramowitz’s property manager (Property Manager 1) pose as the sole seller and manager of 163 N. Potomac St., LLC and arranging Property Manager 1 to sign the FHA-loan contact as the official seller of the property.  Abramowitz’s ownership of 163 N, Potomac St., LLC. or involvement in the sale was never disclosed.

To meet the requirements of the loan procurement process, Abramowitz gave Relative 1 $10,500 to pay for the closing costs for Property 1 as Relative 1 did not have the financial means to make the purchase.   Based on the fraudulent financial information presented during the loan application process, Mortgage Company 1 loaned Relative 1 $294,566 for the purchase of Property 1.  The majority of the loan proceeds were subsequently deposited into Abramowitz’s bank account.  Ultimately, Relative 1 never used Property 1 as a primary residence and rented the property to tenants for a year before ceasing mortgage payments and allowing the property to fall into foreclosure.

Further, Abramowitz arranged the sale of his second Potomac Street property (Property 2) in March 2017 to another family member (Relative 2) using an FHA-insured loan.  To facilitate the sale of Property 2, Relative 2 applied for an FHA-insured loan with another mortgage company (Mortgage Company 2).  Using the same manner to defraud Mortgage Company 1, Abramowitz concealed his familial relation to Relative 2, falsely listed his property manager as the sole seller and owner of Property 2 and submitted multiple fraudulent documents to Mortgage Company 2, including an LLC affidavit of title asserting that no other person or entity had ownership in Property 2.

In a similar manner as the sale of Property 1, Abramowitz violated FHA-loan requirements by providing Relative 2 $8,750 for the closing costs of the sale, misrepresented his own bank account information as Relative 2’s in the FHA-loan procurement process, and received the majority of the loan proceeds to his personal bank account.  Relative 2 never used Property 2 as a primary residence or paid monthly mortgage payments to Mortgage Company 2 which caused the property to fall into foreclosure.

Abramowitz faces a maximum of 30 years in prison followed up by 5 years of supervised release for conspiracy to commit wire fraud.  U.S. District Judge Richard D. Bennett has scheduled sentencing for August 9, 2022, at 2:30 p.m.

The guilty plea was announced by United States Attorney for the District of Maryland Erek L. Barron and Special Agent in Charge Shawn A. Rice of the U.S. Department of Housing and Urban Development Office of Inspector General.

As part of his guilty plea, Abramowitz will be ordered to pay $373,684 in restitution.

United States Attorney Erek L. Barron commended HUD-OIG for their work in the investigation.  Mr. Barron thanked Assistant U.S. Attorney Martin J. Clarke, who is prosecuting the federal case.

For more information on the Maryland U.S. Attorney’s Office, its priorities, and resources available to help the community, please visit www.justice.gov/usao-md and https://www.justice.gov/usao-md/community-outreach.

 

Isaac DePaula, 41, a loan officer for a mortgage company today admitted his role in a long-running, large-scale mortgage fraud scheme,

According to the documents filed in this and other cases and statements made in court:

From September 2006 to September 2010, DePaula and his conspirators engaged in a long-running, large-scale mortgage fraud conspiracy through a mortgage company called Premier Mortgage Services (PMS). The conspirators targeted properties in low-income areas of New Jersey. After recruiting straw buyers, the defendants used a variety of fraudulent documents to make it appear as though the straw buyers possessed far more assets, and earned far more income, than they actually did. The defendants then submitted these fraudulent documents as part of mortgage loan applications to financial institutions. Relying on these fraudulent documents, financial institutions provided mortgage loans for the subject properties.

The defendants then split the proceeds from the mortgages among themselves and others by using fraudulent settlement statements (HUD-1s), which hid the true sources and destinations of the mortgage funds provided by financial institutions. The defendants made false representations and provided fraudulent documents when, in fact, the straw buyers had no means of paying the mortgages on the subject properties, many of which entered into foreclosure proceedings.

The defendants played different roles in the scheme, and others charged and convicted included a part owner of PMS, an attorney who aided the fraud by performing closings on many of the subject properties, an accountant who created false documents, the owner of a real estate development company, several loan officers, and a paralegal for another attorney who also closed fraudulent transactions.

DePaula was a loan officer at PMS and recruited straw buyers, provided false and fraudulent documents to the straw buyers, and incorporated false and fraudulent documents into loan applications to induce financial institutions to fund mortgage loans. The loan officers profited illegally by receiving a commission from PMS for each mortgage loan that they closed, and also profited illegally by diverting portions of the fraudulently obtained mortgage proceeds for themselves, often via shell corporations or nominee bank accounts.

DePaula was a long-time fugitive who was charged by criminal complaint in 2012 and by indictment in 2016. He returned to the United States in March 2020 to face the charges in the indictment.

Acting U.S. Attorney Rachael A. Honig made the announcement.

The offense to which DePaula pleaded guilty carries a maximum potential penalty of 30 years in prison and a maximum fine of $1 million. Sentencing is scheduled for April 19, 2022.

Acting U.S. Attorney Honig credited special agents of the FBI, under the direction of Special Agent in Charge George M. Crouch Jr. in Newark; special agents of IRS-Criminal Investigation, under the direction of Special Agent in Charge Michael Montanez in Newark; and special agents of the Federal Housing Finance Agency – Office of the Inspector General, under the direction of Special Agent in Charge Robert W. Manchak, with the investigation leading to today’s guilty plea.

Dennys Tapia, 55, Ridgefield Park, New Jersey was sentenced today to 15 months in prison for his role in a scheme to defraud financial institutions of hundreds of thousands of dollars.

According to documents filed in this case and statements made in court:

From 2015 to 2018, Tapia conspired with others to fraudulently obtain mortgage loans from financial institutions, including “Mortgage Lender A” and “Mortgage Lender B,” to finance the purchase of properties by unqualified buyers. Applicants for mortgage loans are required to list their assets and income on their mortgage loan applications, and mortgage lenders rely on those applications when deciding whether to issue mortgage loans.

Tapia admitted participating in a conspiracy in which he knowingly provided fraudulent documents to a loan officer at Mortgage Lender A for potential borrowers, including fraudulent lease agreements, bank statements, and a gift check and gift letter. Based on this false information, Mortgage Lender A issued mortgage loans to unqualified buyers, which caused Mortgage Lender A hundreds of thousands of dollars in losses. Some of the loans Mortgage Lender A issued to unqualified borrowers were sold to the Federal Home Loan Mortgage Corporation “Freddie Mac,” a government-sponsored enterprise with the mission of providing liquidity, stability, and affordability in the United States housing market.

Tapia also admitted causing a straw borrower, “Individual A,” to apply to Mortgage Lender B for a cash-out refinance mortgage loan that contained multiple misrepresentations of material facts and fraudulent documents, including pay stubs and a verification of employment. Based on the false information submitted by Individual A and Tapia, Mortgage Lender B issued a false and fraudulent cash-out refinance mortgage loan, which resulted in Tapia earnings tens of thousands of dollars in profits.

Tapia previously pleaded guilty before U.S. District Judge Stanley R. Chesler to an information charging him with one count of conspiracy to commit bank fraud. Judge Chesler imposed the sentence today in Newark federal court.

Acting U.S. Attorney Rachael A. Honig made the announcement.

In addition to the prison term, Judge Chesler sentenced Tapia to two years of supervised release and ordered restitution of $182,508 and forfeiture of $176,532.

Acting U.S. Attorney Honig credited special agents of the FBI, under the direction of Special Agent in Charge George M. Crouch Jr. in Newark, and special agents of the Federal Housing Finance Agency, Office of Inspector General, under the direction of Special Agent in Charge Robert Manchak, with the investigation leading to today’s sentencing.

The government is represented by Assistant U.S. Attorney Jonathan Fayer of the Economic Crimes Unit of the U.S. Attorney’s Office, and Special Assistant U.S. Attorney Charlie Divine of the Federal Housing Finance Agency, Office of Inspector General.

 

Joseph A. Gonzalez, 46, Henderson, Nevada was sentenced today for his role in a scheme to use bogus information and simultaneous loan applications at multiple banks – known as “shot-gunning” – to attempt to obtain home equity lines of credit (HELOCs).

According to documents filed in the case and statements made in court:

From 2010 through 2018, Jorge Flores and Simon Curanaj, a real estate broker in the Bronx who has previously pleaded guilty and is awaiting sentencing, ran a mortgage fraud scheme in which they applied for more than $9 million in HELOCs from banks on residential properties in New Jersey and New York.

Gonzalez and Flores used a property in Jersey City, New Jersey, as part of the scheme. Gonzalez had been allowed by the owner of the property to live there in exchange for management services, but neither he nor Flores owned the property. Gonzalez also recruited an individual with good credit to act as a straw buyer (Individual 1). Unbeknownst to the owner of the property, a “quitclaim” deed – which contains no warranties of title – was prepared transferring the property to Individual 1. The signatures on the deed were forged.

Gonzalez and Flores then applied for two HELOCs from multiple banks using the Jersey City property as collateral in Individual 1’s name. They concealed the fact that the property offered as collateral was either already subject to senior liens that had not yet been recorded, or that the same property was offered as collateral for a line of credit from another lender. The applications also contained false information concerning Individual 1’s income, which was stated to be higher than his actual income. At the time the applications were made, the value of the property was less than the amount of the HELOC loans for which Gonzalez and Flores applied.

The victim banks eventually issued loans to Individual 1 in excess of $500,000. After the victim banks funded the HELOCs and deposited money into Individual 1’s bank account, Individual 1 disbursed almost all of it to Gonzalez, Flores, and others. Gonzalez used $43,000 of the illicit proceeds to buy a luxury car. Individual 1 eventually defaulted on both HELOC loans.

Gonzalez previously pleaded guilty before U.S. District Judge John Michael Vazquez to Count One of an indictment charging him with one count of conspiracy to commit bank fraud. Judge Vazquez imposed the sentence today by videoconference. Gonzalez is the sixth person to plead guilty as part of the scheme.

In addition to the prison term, Judge Vazquez sentenced Gonzalez to three years of supervised release and ordered him to pay restitution of $512,500.

Acting U.S. Attorney Rachael A. Honig made the announcement.

Acting U.S. Attorney Honig credited special agents of the Federal Housing Finance Agency, Office of Inspector General, under the direction of Special Agent in Charge Robert Manchak; and special agents of the FBI, under the direction of Special Agent in Charge George M. Crouch Jr. in Newark, with the investigation leading to today’s sentencing.

The government is represented by Jason S. Gould, Acting Chief of the Violent Crimes Unit, and Special Assistant U.S. Attorney Kevin DiGregory of the FHFA, Office of the Inspector General.

 

David Daughtrey, 60, El Cajon, California was sentenced in federal court today on charges of bank fraud and tax evasion.

In July 2020, Daughtrey pleaded guilty to one count of conspiracy to commit bank fraud and tax fraud, and one count of filing a false tax return. Daughtrey’s illegal conduct spanned for a decade, from 2006 until 2016. For several years, Daughtrey evaded income tax by under-reporting his income and orchestrated an illegal scheme to fraudulently obtain a mortgage for his $1.8 million residence using a third party.  The total tax loss to the United States in this case was $1,053,989.63.

According to court documents, from July 2006 until April 2016, Daughtrey conspired with others to commit the crimes to which he pleaded guilty. As part of the bank fraud scheme, Daughtrey directed another individual to submit a mortgage application to a national bank to purchase a $1.8 million five-bedroom residence, and to falsely claim that the funds used as down payment belonged to, and the residence would be used by, the third party.

In reality, Daughtrey provided the funds and the home was intended to be Daughtrey’s primary residence. Daughtrey made monthly mortgage payments of approximately $8,000 for his residence but continued to represent to the bank that the third party owned the house. Daughtrey later submitted a false hardship letter on behalf of the third party in an effort to modify the terms of the loan on the home.

Over several years, Daughtrey conspired to commit tax evasion by filing tax returns listing substantially less income than Daughtrey actually earned.  Daughtrey’s tax return for the year 2012, for example, omitted at least $498,612 in income.  Daughtrey failed to report his total income in tax years 2013, 2014, and 2015, and did not file timely tax returns for subsequent years.  Daughtrey agreed to pay $1,053,989.63 in restitution to the IRS, which includes the total tax loss plus penalties and interest.

Daughtrey was sentenced to 18 months in custody and ordered to pay restitution of $1,519,590.63.

The defendant abused our tax and banking systems for his own financial benefit, and the victims of that crime are ethical taxpayers and bank customers,” said Acting U.S. Attorney Randy Grossman. “Today’s sentence will hopefully remind others that there is a high price to pay for such deception.” Grossman thanked prosecutor Oleksandra Johnson and agents from the IRS and FBI for their excellent work on this case.

While Mr. Daughtrey achieved business success, he failed in his obligations as an American by lying to our banks and cheating the government,” said Special Agent in Charge Ryan L. Korner, IRS Criminal Investigation. “Today’s sentencing shows that we will hold accountable those who deceive and exploit our people and financial institutions because of their greed.

The FBI and our partners at the IRS uncovered David Daughtrey’s mortgage fraud and tax evasion scheme using our team’s financial and fraud expertise,” said FBI Special Agent in Charge Suzanne Turner.  “Today’s sentencing serves as a warning to those who attempt to personally gain by deliberately cheating the government and the integrity of the banking system through financial fraud.  Our team of fraud experts will bring justice in these white-collar cases.”

Dennys A. Tapia, 54, Ridgefield Park, New Jersey, admitted today, his role in a scheme to defraud financial institutions of hundreds of thousands of dollars

According to documents filed in this case and statements made in court: From 2015 to 2018, Tapia conspired with others to fraudulently obtain mortgage loans from financial institutions, including “Mortgage Lender A” and “Mortgage Lender B,” to finance the purchase of properties by unqualified buyers. Applicants for mortgage loans are required to list their assets and income on their mortgage loan applications, and mortgage lenders rely on those applications when deciding whether to issue mortgage loans.

Tapia admitted to participating in a conspiracy in which he knowingly provided fraudulent documents to a loan officer at Mortgage Lender A for potential borrowers, including fraudulent lease agreements, bank statements, and a gift check and gift letter. Based on this false information, Mortgage Lender A issued mortgage loans to unqualified buyers, which caused Mortgage Lender A hundreds of thousands of dollars in losses. Tapia also admitted to conspiring with a straw borrower, “Individual A,” to submit an application to Mortgage Lender B for a cash-out refinance mortgage loan that contained multiple misrepresentations of material facts and fraudulent documents, including pay stubs and a verification of employment. Based on the false information submitted by Individual A and Tapia, Mortgage Lender B issued a false and fraudulent cash-out refinance mortgage loan, which resulted in Tapia earnings tens of thousands of dollars in profits.

The conspiracy charge to which Tapia pleaded guilty carries a maximum of 30 years in prison and a $1 million fine. Sentencing is scheduled for April 17, 2021.

Tapia pleaded guilty by videoconference before U.S. District Judge Stanley R. Chesler to an information charging him with one count of conspiracy to commit bank fraud.

U.S. Attorney Craig Carpenito made the announcement.

U.S. Attorney Carpenito credited special agents of the FBI, under the direction of Special Agent in Charge George M. Crouch Jr. in Newark, and special agents of the Federal Housing Finance Agency, Office of Inspector General, under the direction of Special Agent in Charge Robert Manchak, with the investigation leading to today’s guilty plea.

The government is represented by Assistant U.S. Attorney Jonathan Fayer of the Economic Crimes Unit of the U.S. Attorney’s Office, and Special Assistant U.S. Attorney Charlie Divine of the Federal Housing Finance Agency, Office of Inspector General.

Mary Beyer Halsey, 59, Rising Sun, Maryland, the former President and Chief Executive Officer of Cecil Bank, was sentenced today for charges of conspiracy to commit bank fraud, receipt of a bribe by a bank official, and false statement in bank records, in connection with the straw purchase of a home in Rising Sun, Maryland, upon which Cecil Bank had foreclosed.

According to her plea agreement, from 2012 to 2013, Halsey conspired with Daniel Whitehurst, 36, Bel Air, Maryland, an employee of a real estate development company that did business in Maryland, to defraud Cecil Bank and another bank to purchase a home through false pretenses, representations and promises.  Specifically, on March 28, 2012, Halsey and Whitehurst met at a restaurant in Cecil County.  Whitehurst asked Halsey if she could help him and a business partner get a $500,000 line of credit from Cecil Bank.  Halsey agreed to help Whitehurst to obtain a line of credit from Cecil Bank, in exchange for Whitehurst agreeing to serve as the straw purchaser of 127 Ebenezer, Rising Sun, Maryland on behalf of Halsey.  Halsey suggested that she increase the line of credit for Whitehurst to $650,000 to include the funds needed to buy the house.  Whitehurst agreed to Halsey’s request to secretly buy 127 Ebenezer on Halsey’s behalf.  On May 9, 2012, Halsey participated in a loan committee meeting at Cecil Bank that considered and approved a $650,000 line for credit for Whitehurst and a $500,000 line of credit for his business partner.

Halsey admitted that at her request, on May 14, 2012, Whitehurst visited 127 Ebenezer and provided Halsey with an estimate of the costs to update the house.  Whitehurst determined that beyond replacing the kitchen sub-flooring at a cost of about $1,000, there were no significant repairs needed.  Whitehurst provided a letter of intent to purchase the home from the bank for $150,000 for Halsey to review.  Halsey suggested lowering the price to $145,000 to allow room to increase the offer later.  Halsey knew that an exterior-only appraisal of the property ordered by Cecil Bank on November 9, 2011, showed a market value of $263,000.  A full appraisal on September 10, 2012, reflected a market value of $295,000.  To support the below-market price that Halsey wanted to pay, Whitehurst included in the letter of intent a list of lower-priced home sales in the same area that were not comparable to 127 Ebenezer and therefore was not reflective of the property’s actual market value.

As detailed in the plea agreement, on May 23, 2012, Whitehurst e-mailed Cecil Bank his offer to purchase 127 Ebenezer for $145,000.  On the same day, during a meeting of the Cecil Bank Board of Directors, Halsey advised the Board that Whitehurst had made a purchase offer of $140,000 for 127 Ebenezer, $5,000 less the actual offer.  To support the below-market price of $140,000, Halsey falsely characterized the property as having “structural deficiencies [that] will require significant repairs.”  Halsey did not disclose her personal interest in the property, nor Whitehurst’s role as her nominee to acquire the property on her behalf.  The Board authorized Halsey to “negotiate the best price.”  Thereafter, Whitehurst submitted a contract for him to purchase 127 Ebenezer from Cecil Bank for $150,000, which Halsey signed on August 17, 2012 on behalf of Cecil Bank.

According to the plea agreement, subsequent to authorizing the sale of 127 Ebenezer, Halsey told Whitehurst that he should not use his line of credit from Cecil Bank to purchase the house, but should instead get the funds from a different source.  Whitehurst applied for and obtained a $100,000 loan from another bank to purchase 127 Ebenezer, fraudulently claiming that he was purchasing the property for himself and that the down payment was from an investment account.  On October 31, 2012, prior to 127 Ebenezer going to settlement, Halsey wired $75,000 to Whitehurst’s bank account to cover the cost of the down payment as well as closing costs and upgrades to the property that Halsey directed Whitehurst to arrange.  To conceal the true purpose of the wired funds, Whitehurst sent Halsey a fictitious real estate contract purporting to show that the $75,000 was the down payment for a different property that Whitehurst owned in Havre de Grace, Maryland.

On November 21, 2012, the settlement of 127 Ebenezer was held with Halsey representing Cecil Bank as the seller, and Whitehurst as the purported purchaser, selling the property to Whitehurst for $150,000.  Both signed the HUD-1 form which falsely represented that Whitehurst had paid approximately $52,566 at settlement, when in fact, the down payment and all related closing costs were paid from the $75,000 Halsey had wired to Whitehurst’s bank account beforehand.  From October 31, 2012 through March 29, 2013, Halsey transferred an additional $60,000 to Whitehurst to cover the cost the upgrades to the house that they had previously discussed, as well as to reimburse Whitehurst for mortgage payments he made on the property.  Halsey and Whitehurst also made plans to transfer title of the property to Halsey by selling the house to her at a price that would minimize the tax consequences of the sale for Whitehurst.

In December 2012, in response to a question from a bank examiner for the Federal Reserve Bank of Richmond inquiring about the sale of the property to Whitehurst, Halsey falsely stated that she was “not totally familiar with [that] property” and that the bank had difficulty marketing the property and had not listed it with a realtor because of “issues with the county over the bonds outstanding.”

In April 2013, federal agents began interviewing employees and other borrowers about banking irregularities at Cecil Bank.  Title to 127 Ebenezer was never transferred to Halsey.  Halsey never told the bank that she was the true purchaser of 127 Ebenezer, nor did the bank know that Halsey and Whitehurst had orchestrated the sale of the foreclosed property at the fraudulent price of $150,000, instead of the appraised pre-renovation price of $295,000.

As a result of Halsey’s misrepresentations and omissions, the bank lost approximately $145,000.

Whitehurst pleaded guilty under seal to the federal charge of mail fraud on April 6, 2018.  Whitehurst faces a maximum sentence of 30 years in federal prison for conspiracy to commit bank fraud.  Judge Chasanow has not scheduled a date for Whitehurst’s sentencing.

Halsey pleaded guilty on July 31, 2020, Judge Chasanow also ordered Halsey to forfeit her interest in the home in Rising Sun and to pay restitution in the amount of $145,000.

The sentence was announced by United States Attorney for the District of Maryland Robert K. Hur; Special Agent in Charge Mark P. Higgins of Federal Housing Finance Agency, Office of Inspector General (FHFA-OIG), Mid-Atlantic Region; Special Agent in Charge Patricia Tarasca of Federal Deposit Insurance Corporation, Office of Inspector General (FDIC/OIG), New York Region; Special Inspector General Christy Goldsmith Romero for the Troubled Asset Relief Program (SIGTARP); and Inspector General Hannibal “Mike” Ware of the Small Business Administration, Office of Inspector General (SBA/OIG).

Mary Beyer Halsey will now serve time in federal prison after she used her position as President and CEO of Cecil Bank for her personal benefit, causing a loss to the bank, which had already received federal taxpayer funds as part of the Troubled Asset Relief Program,” said U.S. Attorney Robert K. Hur.  “Corrupt bank officials undermine the public’s trust in our financial system.

The Federal Housing Finance Agency Office of Inspector General (FHFA-OIG) is committed to investigating allegations of fraud committed by officers of financial institutions which are members of the 11 Federal Home Loan Banks (FHLBanks) because their crimes strike at the heart of the FHLBank System,” said Mark Higgins, Special Agent in Charge of the FHFA-OIG’s Mid-Atlantic Region. “We are proud to have partnered with the U.S. Attorney’s Office for the District of Maryland and our law enforcement partners on this case.

Today the former CEO of Cecil Bank was sentenced to prison, becoming the 78th banker sentenced to prison resulting from a SIGTARP investigation,” said Special Inspector General Christy Goldsmith Romero. “Treasury wrote off $11 million from its TARP investment in Cecil Bank.  We commend U.S. Attorney Hur and his team of prosecutors in standing with SIGTARP to combat fraud that hurt banks during critical times.”

Cecil Bank, located in Elkton, Maryland, had received $11,560,000 in federal taxpayer funds in 2008, under the Capital Purchase Program, as part of the Troubled Asset Relief Program.  On April 20, 2011, Cecil Bank initiated the foreclosure of a single-family house located at 127 Ebenezer Church Road in Rising Sun.

United States Attorney Robert K. Hur commended the FHFA-OIG, Mid-Atlantic Region; FDIC/OIG; SIGTARP; and SBA/OIG for their work in the investigation.  Mr. Hur thanked Assistant U.S. Attorneys Martin J. Clarke and Harry M. Gruber, who are prosecuting the case.

 

Joseph A. Gonzalez, 46, Henderson, Nevada, pleaded guilty today for his role in a scheme to use bogus information and simultaneous loan applications at multiple banks – known as “shot-gunning” – to attempt to obtain home equity lines of credit (HELOCs).

According to documents filed in the case and statements made in court:

From 2010 through 2018, Jorge Flores and Simon Curanaj, a real estate broker in the Bronx, New York who has previously pleaded guilty and is awaiting sentencing, ran a mortgage fraud scheme in which they applied for more than $9 million in HELOCs from banks on residential properties in New Jersey and New York.

Gonzalez and Flores used a property in Jersey City, New Jersey, as part of the scheme. Gonzalez had been allowed by the owner of the property to live there in exchange for management services, but neither he nor Flores owned the property. Gonzalez also recruited an individual with good credit to act as a straw buyer (Individual 1). Unbeknownst to the owner of the property, a “quitclaim” deed – which contains no warranties of title – was prepared transferring the property to Individual 1. The signatures on the deed were forged.

Gonzalez and Flores then applied for two HELOCs from multiple banks using the Jersey City, New Jersey property as collateral in Individual 1’s name. They concealed the fact that the property offered as collateral was either already subject to senior liens that had not yet been recorded, or that the same property was offered as collateral for a line of credit from another lender. The applications also contained false information concerning Individual 1’s income, which was stated to be higher than his actual income. At the time the applications were made, the value of the property was less than the amount of the HELOC loans for which Gonzalez and Flores applied.

The victim banks eventually issued loans to Individual 1 in excess of $500,000. After the victim banks funded the HELOCs and deposited money into Individual 1’s bank account, Individual 1 disbursed almost all of it to Gonzalez, Flores, and others. Gonzalez used $43,000 of the illicit proceeds to buy a luxury car. Individual 1 eventually defaulted on both HELOC loans.

The conspiracy to commit bank fraud carries a maximum potential penalty of 30 years in prison, a fine of $1 million or twice the gross pecuniary gain to the defendants or twice the gross pecuniary loss to others, whichever is greater. Sentencing is scheduled for February, 10, 2021.

Gonzalez is the sixth person to plead guilty as part of the scheme.

U.S. Attorney Craig Carpenito made the announcement.

U.S. Attorney Carpenito credited special agents of the Federal Housing Finance Agency, Office of Inspector General, under the direction of Special Agent in Charge Robert Manchak; and special agents of the FBI, under the direction of Special Agent in Charge George M. Crouch Jr. in Newark, with the investigation leading to the guilty plea.

The government is represented by Senior Trial Counsel Jason S. Gould of the U.S. Attorney’s Health Care Fraud Unit in Newark and Special Assistant U.S. Attorney Kevin DiGregory of the FHFA, Office of the Inspector General.