Federal Criminal Defense Blog : Georgia Federal Criminal Defense Lawyer & Attorney : Gillen Withers & Lake Law Firm : White Collar Crime, RICO, Trial : Atlanta, Savannah, GA

Al Lewis of the Wall Street Journal's MarketWatch reports that mortgage fraud is surprisingly on the rise despite the current weakness in the housing market. Mr. Lewis cites the FBI's report on mortgage fraud for 2010, which reports that mortgage brokers, appraisers, underwriters, accountants, real-estate agents, settlement attorneys, land developers, investors, builders, lenders, and bank and trust account representatives continue to utilize fraudulent schemes to defraud lenders, from inflating appraisals and fabricating income statements to recruiting straw buyers. As a result of the depressed housing market, inventive would-be felons have also apparently developed scams involving short sales, loan modifications, and firms offering relief from foreclosures.

The report states that mortgage fraud cases increased 12% in 2010 and that the majority of cases arose in California, Florida, New York, Illinois, Nevada, Arizona, Michigan, Texas, Maryland, New Jersey and, of course, Georgia. The Bureau claims that at least $10 billion in loans were advanced on fraudulent mortgage applications in 2010.

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For exceptional representation in Federal or State, criminal or civil matters, call Gillen Withers & Lake LLC (912) 447-8400 Savannah, or (404) 842-9700 Atlanta. Please visit our new website gwllaw.com.

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Federal officials last week announced that Deutsche Bank and its mortgage division, MortgageIT, allegedly engaged in fraud on a massive scale as a civil complaint was filed against Deutsche Bank. The complaint alleges that the massive German bank allegedly defrauded the government of up to $1.2 billion through alleged reckless lending practices. The Federal Housing Administration has allegedly paid out approximately $386 million in wrongful insurance claims. The government is seeking three times this amount in fines and penalties. Among the government's allegations is a charge that documents which would have informed bank officials about high rates of default were hidden in a closet at MortgageIT. The civil complaint fails to disclose any incriminating documents which could be used to establish an intent to defraud the government.

However, according to an article by Fox Business News, the government is holding back in the Deutsche Bank case from bringing criminal charges in response to the alleged massive fraud. The author points to the case as illustrative of a trend by Federal officials to prosecute alleged wrongdoing by corporations through civil, rather than criminal, means.

The article speculates that Federal officials might have elected civil, rather than criminal, proceedings due to the lower burden of proof , as well as the more time and resource-consuming nature of criminal proceedings. It also acknowledges concerns by prosecutors over potential harm to corporations, investors and the economy and markets in general, illustrated by the demise of accounting giant Arthur Andersen in 2002 as a result of the federal prosecution in the wake of the Enron scandal. The article cites the fact that criminal, as opposed to civil, actions, are often accompanied or followed by de-licensing actions by regulatory bodies.

The article also cites the relatively few criminal prosecutions following the financial collapse of 2007. What criminal proceedings there have been have focused on individuals with various Wall Street firms--rather than the firms themselves. Furthermore, several of these prosecutions have ended in failure, as exemplified by the acquittal of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin in 2009.

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According to a press release by the U.S. Attorney's Office for the Northern District of Georgia, Edward William Farley, of Hoschton, Georgia, was sentenced to 25 years imprisonment today in the U.S. District Court for the Northern District of Georgia for causing more than $23 million in losses to mortgage lenders in a real estate investment Ponzi scheme. Walter Julius Herman, of Dunwoody Georgia, was sentenced to over 2 years imprisonment. Farley was also ordered to pay restitution of $24,131,857. He had pled guilty to the charges last November.

Farley, a mortgage broker, operated through the entities Creative Home Search, Southern Land Partners, Georgia Land Group, and Global Mortgage. Farley engaged in same-day flips of properties in Buford, College Park, Conyers, Cumming, Dacula, Grayson, Lawrenceville, Lithonia, Norcross, Marietta, Roswell, Snellville and Suwanee. He paid Hermann, an appraiser, to fraudulently inflate the value of each property by $50,000 to $100,000. He also recruited purchasers to purchase the properties from one of his entities. In the process of flipping the properties, Farley would submit loan applications with false statements.

Farley was also charged with operating a real estate investment/Ponzi scheme through an entity called Alliance Resource Management. Farley falsely represented to investors that  Alliance Resource Management was in the business of purchasing residential properties, renovating the properties and selling them at a profit, when in truth Alliance Resource Management had insufficient equity or income to purchase or renovate property. Farley also falsely promised investors that their investments were guaranteed by a first security position in property, a personal guarantee or title insurance, and provided investors with false promissory notes promising interest rates between 14 and 60 percent. In typical Ponzi scheme fashion, Farley paid early investors with investment proceeds from later investors.

Finally, Farley was charged with fraudulently obtaining $1.2 million from Washington Mutual Bank
in a check kiting scheme by transferring funds he did not have among several Alliance Resource Management bank accounts, and withdrawing scheme proceeds before the “insufficient funds” checks were returned.

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As reported by the Atlanta Journal-Constitution and WSB Radio, Anthony Ray, a DeKalb County resident, solicited money from investors by promising them large returns from real estate investments by his company, Key Funding Group. He would frequent local churches to locate victims, making presentations to the congregations. Ray lulled his victims by giving them back portions of their investment and falsely referring to them as returns. Ray hosted his victims at several locations around the Atlanta area, including his condominium in Buckhead as well as a $680,000 home in Decatur, Georgia, which belonged to one of his victims and in which he ran his office. In all, Ray stole at least $5 million from over 30 investors.

Ray stole $160,000 from his own parents. He started Key Funding Group with his father, Calvin Ray, 70, and took out large loans using his father’s identity and his parents’ home as collateral. His parents subsequently turned him in. Ray’s twin brother, Antonio, told reporters that Ray took everything his parents had, and that their father, decided that they had to prosecute.

Ray previously served five years in prison for stealing his brother's identity.

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