Archives For Appraisal Fraud

Robert Morgan, Frank Giacobbe, Todd Morgan, and Michael Tremiti, have been charged today in a 114-count superseding indictment charging them with conspiracy to commit wire fraud and bank fraud for their roles in a half billion dollar mortgage fraud scheme.

The defendants each face various additional charges such as wire and bank fraud, and money laundering. Todd Morgan and Robert Morgan are also charged with wire fraud conspiracy to defraud insurance companies. The charges carry a maximum penalty of 30 years in prison and a fine in the amount of double the loss caused by the crimes, which is currently estimated to exceed $25,000,000.

During the course of the conspiracy:

  • Robert Morgan was the managing member and chief executive officer of Morgan Management. In addition to his role with Morgan Management, he controlled and managed owned a substantial portfolio of real estate holdings;
    • Frank Giacobbe owned and operated Aurora Capital Advisors, identified himself as the Principal, and employed others to assist him in brokering, and attempting to broker real estate loans;
    • Todd Morgan was employed at Morgan Management, and worked as a Project Manager at the company; and
    • Michael Tremiti was employed at Morgan Management, and worked as Director of Finance for the company.

According to the superseding indictment, between 2007 and June 2017, the defendants conspired with Kevin Morgan, Patrick Ogiony, Scott Cresswell, and others to fraudulently obtain moneys, funds, credits, assets, securities, and other property from financial institutions such as Arbor Commercial Mortgage, LLC and Berkadia Commercial Mortgage, LLC, and government sponsored enterprises, including Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal National Mortgage Association (Fannie Mae).

The defendants provided false information to financial institutions and government sponsored enterprises overstating the incomes of properties owned by Morgan Management or certain principals of Morgan Management. The false information induced financial institutions to issue loans: (1) for greater values than the financial institutions would have authorized had they been provided with truthful information; and (2) that the financial institutions would not have issued at the time of issuance had they been provided with truthful information. These properties included:

  The Preserve at Autumn Ridge, Watertown, New York;
  The Eden Square Apartments, Cranberry Township, Pennsylvania;
  The Rochester Village Apartments at Park Place, Cranberry Township, Pennsylvania;
  The Reserve at Southpointe, Canonsburg, Pennsylvania;
  7100 South Shore Drive Apartments, Chicago, Illinois;
  The Avon Commons Apartments, Avon, New York;
  The Morgan Bay Apartments, Houston, Texas;
  Brookwood on the Green, Syracuse, New York;
  The Creek Hill Apartments, Rochester, New York;
  Hickory Hollow, Rochester, New York;
  The Knollwood Manor Apartments, Rochester, New York;
  The Links at Centerpointe, Canandaigua, New York;
  The Nineteen North Apartments, Pittsburgh, Pennsylvania;
  The Overlook at Golden Hills, Lexington, South Carolina;
  The Penbrooke Meadows Apartments, Rochester, New York;
  The Trails of North Hills Apartments, Raleigh, North Carolina;
  The Rivers Pointe Apartments, Syracuse, New York;
  The Union Square Apartments, Rochester, New York;
  The View at MacKenzi, York, Pennsylvania; and
  The Villas of Victor, Rochester, New York.

To facilitate the conspiracy:

  • Morgan Management provided property management, accounting, and financial reporting services for the properties owned by limited liability companies controlled by defendant Robert Morgan.
    • The defendants conspired to manipulate income and expenses for properties to meet debt service coverage ratios (“DSCRs”) required by lending institutions. The manipulation included, among other things, removing expenses from information reported to lenders and keeping two sets of books for at least 70 properties, with one set of books containing true and accurate figures and a second set of books containing manipulated figures to be provided to lenders in connection with servicing and re-financing loans.
    • The defendants conspired to present lending institutions with false and fraudulent inflated construction contracts and invoices that falsely reported to the lending institution that the contractor constructing a property was being paid more than the contractor was actually being paid.
    • The defendants provided false information to financial institutions and government sponsored enterprises that overstated net incomes of properties and thereby induced financial institutions to: (1) issue loans (a) for greater values than financial institutions would have authorized had they been provided with truthful information; and (b) that the financial institutions would not have issued at the time of issuance had they been provided with truthful information; and (2) forgo contractual rights that would have inured to the financial institutions had the defendants and Morgan Management presented accurate financial information to the financial institutions.
    • The defendants employed various mechanisms to mislead inspectors, appraisers, financial institutions and government sponsored enterprises with respect to the occupancy of properties.
    • The defendants falsely inflated the amounts owed on properties, by among other things, (1) providing false documentation of obligations purportedly associated with the properties, (2) misrepresenting the actual purchase prices of properties by providing false contracts and contract prices, and (3), as set forth above, presenting false construction contracts and invoices.

In the wire fraud conspiracy to defraud insurers, Todd Morgan and Robert Morgan are accused of conspiring with Kevin Morgan and Scott Cresswell to present false and inflated contracts and invoices for repairs to insurers after damages to properties in Robert Morgan’s real estate portfolio. These properties include the Summerwood Apartments, Merrillville, Indiana; the Eden Square Apartments, Cranberry Township, Pennsylvania; and at thirty-four properties in the Rochester, New York area after a March 2017 windstorm in that area.

The defendants are also charged with money laundering conspiracy for engaging in monetary transactions in excess of $10,000 using the proceeds of wire fraud and bank fraud.

The total loss sustained by financial institutions and government sponsored enterprises throughout the mortgage fraud scheme is currently estimated to exceed $25,000,000. The loss resulting from the insurance fraud scheme is currently estimated at approximately $3,000,000.

The defendants made an initial appearance before U.S. Magistrate Judge Michael J. Roemer and were released on conditions.
U.S. Attorney James P. Kennedy, Jr. made the announcement.

The charges announced today reflect this Office’s commitment to ensuring that those who do business with the mortgage, banking, and insurance industries act with honesty and integrity,” stated U.S. Attorney Kennedy. “The scope of the dishonesty and deceit alleged here—both in a geographic sense as well as in terms of the dollar value of the mortgages and properties involved—was expansive. This type of fraud strikes at the very heart of those industries, and I commend the FBI and the FHFA-OIG for the significant resources they devoted to this investigation in order to reveal the full scope of the illegal conduct alleged in this superseding indictment.

Today’s charges allege Robert Morgan-and the men he surrounded himself with in business-worked hard with a desire to creatively subvert the integrity of the financial industry,” said FBI Buffalo Special Agent-in-Charge Gary Loeffert. “In response, we worked just as hard and creatively to put a stop to it. We hope the indictment returned in this case helps to educate and protect the tens of thousands of investors who own mortgage-backed securities.”

Richard Parker, Acting Deputy Inspector General for Investigations for the Federal Housing Finance Agency, Office of Inspector General (FHFA-OIG), said, “the financing of multifamily loans is a significant segment of Fannie Mae’s and Freddie Mac’s portfolio.  As these charges demonstrate, FHFA-OIG will work with our partners in law enforcement to investigate and hold accountable those who seek to victimize the entities regulated by FHFA.”

Defendants Kevin Morgan and Patrick Ogiony were previously convicted of conspiracy to commit bank fraud, and defendant Scott Cresswell was previously convicted of conspiracy to commit wire fraud for their roles in the multi-million dollar fraud scheme. All three defendants are awaiting sentencing.

The superseding indictment is the result of an investigation by the Federal Bureau of Investigation, under the direction of Special Agent-in-Charge Gary Loeffert, and the Federal Housing Finance Agency, Office of Inspector

General, under the direction of Special Agent-in-Charge Robert Manchak, Northeast Region.

The fact that a defendant has been charged with a crime is merely an accusation and the defendant is presumed innocent until and unless proven guilty.


Steven Garcia, 45, Schaumburg, Illinois and his brother, Michael R. Garcia, 43, Streamwood, Illinois, two suburban mortgage brokers, have been charged with fraudulently operating a purportedly independent appraisal management company to control property valuations, and brokering fraudulent loans to finance real estate transactions between themselves and nominees.

The brothers operated American Financial Mortgage Services Inc., a licensed mortgage brokerage in Schaumburg, Illinois.  According to a criminal information filed Wednesday in federal court in Chicago, the brothers fraudulently caused lenders to make mortgage loans brokered by American Financial by falsely representing that the supporting property appraisals were performed by independent appraisers, when, in fact, the Garcias and American Financial employees selected the appraisers, managed the appraisal process, influenced property valuation and paid the appraisers.

According to the charges, the Garcias bypassed FHA regulations by controlling a purportedly independent appraisal firm, Residential Appraisal Management Company Inc., through a nominee.  The Garcias fraudulently used RAMCI to steer appraisals to hand-picked appraisers, including a relative of the Garcias, who would provide an appraised value sufficient to support a proposed loan, while falsely representing to lenders that RAMCI selected appraisers based on experience and skill, the information states.

The Garcias also fraudulently caused lenders to make mortgage loans to finance fraudulent real estate transactions in which the Garcias and their nominees purchased and re-sold residences at inflated prices to unqualified nominees who then defaulted on the loans, the information states.  The Garcias furnished lenders with false employment and income information to support the nominees’ loan applications, and then provided the nominees with the money to make the purchases, the information states.  The Garcias fraudulently obtained approximately $1.9 million that was disbursed at the closings of the fraudulent real estate transactions, and another $274,000 in commissions from those deals, the information states.

Each are charged with one count of mail fraud and one count of wire fraud.  Arraignments in federal court in Chicago have not yet been scheduled.

Each count in the information is punishable by up to 30 years in prison.  If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory U.S. Sentencing Guidelines.

The government is represented by Assistant U.S. Attorneys Brian Netols and Matthew Ebert.

The charges were announced by John R. Lausch, Jr., United States Attorney for the Northern District of Illinois; Brad Geary, Special Agent-in-Charge of the U.S. Department of Housing and Urban Development’s Office of Inspector General in Chicago; and Jeffrey S. Sallet, Special Agent-in-Charge of the Chicago office of the Federal Bureau of Investigation.

Federal Housing Administration regulations prohibit mortgage brokers from having substantive communications with appraisers relating to valuation of properties, including ordering or managing an appraisal assignment, and from paying appraisers.  Lenders rely on independent appraisals conducted within FHA regulations.

The public is reminded that an information is not evidence of guilt.  The defendants are presumed innocent and entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Eugene Peter Kenworthy, Jr., 50, appraiser, Ambler, Pennsylvania, was charged by Indictment with wire fraud, false statements for the purpose of influencing the Federal Housing Administration, aggravated identity theft, and failure to file a tax return.

The indictment alleges that, beginning as early as 1993, Kenworthy worked at Tech Review LTD, a real estate appraisal company owned by Kenworthy’s father.  Kenworthy began managing Tech Review after his father’s death in 2003 and sold the company in 2012 after which he formed two other companies, Global Appraisal Management and East Coast Appraisal Management.

According to the indictment, from March 2010 to February 2016, Kenworthy appraised approximately 714 properties which were the subject of HECM loan applications.  Kenworthy used the electronic signatures of five certified appraisers without their knowledge and consent to certify approximately 294 of those appraisals reports.  Those appraisers did not appraise the properties or write the reports.  Kenworthy used his own signature to certify the other approximately 420 appraisal reports he wrote. Most of the appraisals were for a single mortgage broker/origination company which paid Kenworthy about $450 per appraisal.

Also according to the indictment, Kenworthy made false statements in some of the HECM appraisal reports which resulted in falsely inflated valuations for the properties and, fraudulently inflated the HECM loan amounts. The indictment details several of these transactions.

As of July 2017, of the 714 properties for which Kenworthy wrote an appraisal report for a HECM, FHA had paid 53 claims totaling almost $3.7 million on foreclosed properties where the sales price of the home was insufficient to cover the HECM loan.

Kenworthy was added to the FHA appraiser roster in 1999 and, in or about January 2016, HUD suspended Kenworthy, barring him from performing FHA appraisals.

If convicted the defendant faces a maximum possible sentence is 166 years’ imprisonment, five years of supervised release, a $5,050,000 fine, and a $1,000 special assessment

The indictment was announced Acting United States Attorney Louis Lappen. The case was investigated by the United States Department of Housing and Urban Development – Office of Inspector General and the Internal Revenue Service – Criminal Investigation, and is being prosecuted by Assistant United States Attorney Karen L. Grigsby.

Matt Garner, 34, licensed real estate appraiser, Lexington, Kentucky, was sentenced in federal court to five months in prison and five months home confinement. He was also ordered to pay a $5,500 fine. Garner pled guilty in May of 2017 to conspiracy to commit wire fraud and making false statements to a federal agency,

Garner made false statements in connection with appraisals he submitted for use by lenders in connection with federally-backed mortgages.

Garner owned and operated Lexington-based Garner & Associates. Between 2012 and 2016, his company was paid for more than 700 appraisals, on homes being purchased or refinanced in numerous counties surrounding Lexington and Owensboro, Kentucky. In his guilty plea, acknowledged that, in a significant percentage of these appraisals, he falsely certified on federal appraisal forms that he had personally visited the property and conducted the appraisal.  In fact, had paid unlicensed individuals a small portion of the appraisal fee to perform the appraisals.

Senior U.S. District Court Judge Joseph M. Hood sentenced Garner. Carlton S. Shier, IV, Acting United States Attorney for the Eastern District of Kentucky, and Amy S. Hess, Special Agent in Charge, Federal Bureau of Investigation, Louisville Field Office, announced the sentence today.

The Louisville Division of the Federal Bureau of Investigation conducted the investigation. Assistant U.S. Attorneys Ken Taylor and Kate Anderson represented the federal government

Oscar Cantalicio Ortiz, 53, a contractor who had resided in Kingwood, Texas, prior to becoming a fugitive in this case, was sentenced in absentia to 262 months in prison for his role in a $16 million loan fraud scheme.  Ortiz pleaded guilty June 30, 2016, to conspiring to commit bank, mail and wire fraud. He was set for set for sentencing April 24, 2017, but failed to appear for that hearing.

U.S. District Judge Kenneth Hoyt further ordered Ortiz to pay $5,462,800 in restitution. At the hearing, the court heard testimony that Ortiz was aware of the previous hearing and that he had cut off his ankle monitor and left it on the side of the road.

He is considered a fugitive and a warrant remains outstanding for his arrest. Anyone with information about his whereabouts is asked to contact the FBI at 713-693-5000.

Seung Min Santillan, aka Suzy, 57, real estate agent, Houston, Texas, pleaded guilty to conspiracy and making false statements on a loan application in September 2016. She was previously sentenced to 168 months in federal prison and ordered to pay $5,299,500 in restitution.

Ortiz and Santillan operated a mortgage fraud scheme in which they recruited straw borrowers to purchase residential properties in the Houston, Texas, area. Loans were obtained from lending institutions to purchase these properties in the names and using the credit of the straw borrowers. The lenders were provided materially false information to induce them to fund these residential loans, including fraudulent appraisal reports. The loans were funded and ultimately fell into default when all the mortgage payments were not made as promised.

Ortiz and Santillan utilized several business entities during the execution of the scheme to defraud including Uptown Builders LLC, Americorp Builders LLC, Luxury Quality Homes LLC and Santi Investments. In recruiting straw borrowers during the scheme, the borrowers were told the residential property would be in their name for a short period while Ortiz made modifications to the property prior to reselling the house. Ortiz and Santillan promised the straw borrowers that they would handle all the costs associated with purchasing and holding these properties.

Once the loans to purchase the residence funded, one or more of the business entities Ortiz utilized would receive a large portion of the loan proceeds. This occurred even when the same property was purchased for the second time in the name of a new straw borrower. The defendants were able to take a large portion of the loan proceeds since the value of the residence was inflated with fraudulent appraisal reports.

The sentenced was announced by Acting U.S. Attorney Abe Martinez.The FBI conducted the investigation. Assistant U.S. Attorney Melissa Annis is prosecuting the case.

Michael Lane Prevette, Greensboro, North Carolina, was sentenced to 42 months imprisonment in federal court in connection with loan application and appraisal fraud.

Brian Keith Perdue, appraiser, was sentenced to 5 years probation and ordered to pay $886,749.02 in restitution.

In October of 2016, Prevette pled guilty to count one of an indictment, which charged Conspiracy to Commit Application Fraud.  After Prevette completes the term of imprisonment, he will be on federal supervised release for 3 years and has been ordered to pay $886,749.02 in restitution. United States District Judge R. Bryan Harwell of Florence imposed the sentence.

Prevette was involved in a scheme in which mortgage lenders were misled when members of the conspiracy caused fraudulent loan packages to be submitted to the lenders. These packages included inflated real estate appraisals which were prepared at Prevette’s direction. These properties were located in the Myrtle Beach area.

United States Attorney Beth Drake made the announcement. The case was investigated by the FBI.  Assistant United States Attorney John C. Potterfield of the Columbia United States Attorney’s Office prosecuted the case.

Anthony Cruz Quitugua, 38, Phoenix, Arizona, was arrested on May 23, 2012, to face charges of mortgage fraud. In May of 2011, a federal grand jury in Phoenix returned a 15-count indictment against Quitugua, which alleges that he defrauded mortgage lenders out of more than $3.5 million dollars.

Continue Reading...

Ann Hils, 55, East Hampton, Connecticut, was sentenced by U.S. District Judge Alvin W. Thompson to 63 months of imprisonment, followed by five years of supervised release, for operating a real estate appraisal scheme.

Continue Reading…

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.

Continue Reading…

Steven Essig, Syracuse, New York, a licensed appraiser and the owner of an appraisal company in Syracuse, pleaded guilty to a felony charge stemming from making false entries in an appraisal report. The falsified report was used to obtain a mortgage as part of a million dollar mortgage fraud scheme.

Continue Reading…