Here is another example of a recent legal case involving mortgage fraud. I try to post case summaries in order to provide timely updates to real estate professionals on important issues.
A federal grand jury has indicted four defendants for their participation in a massive mortgage fraud scheme that promised to pay off homeowners' mortgages on their "Dream Homes," but left them to fend for themselves. The indictment was returned on April 22, 2009, and unsealed yesterday (Monday, April 27, 2009).
According to the indictment, from 2005 to 2007, the defendants allegedly used corporate names such as "Metropolitan Grapevine LLC," "Metro Dream Homes," "POS Dream Homes," and "POS DH LLC" (collectively, “MDH”) to target homeowners and new home purchasers to participate in a purported mortgage payment program called the "Dream Homes Program." To participate, an investor had to provide a minimum of $50,000 for each home enrolled in the program, in addition to an "administrative fee" of up to $5,000. In exchange, the program promised to make the homeowner’s future monthly mortgage payments, and pay off the homeowner’s mortgage within five to seven years. Thereafter, the homeowner and MDH would own an equal interest in the home.
The indictment identifies the following people and alleges that Andrew Hamilton Williams, Jr. was the founder and owner of MDH; Michael Anthony Hickson was the chief financial officer; Isaac Jerome Smith was the president; and Alvita Karen Gunn was the vice president of operations. The information alleges that Carole Nelson was the chief financial officer of POS Dream Homes.
The indictment further alleges that Dream Homes Program representatives explained to investors that the homeowners’ initial payments would be used to fund investments in automated teller machines (ATMs), flat-screen televisions that would show paid business advertisements, and "Touch-N-Buy" electronic kiosks that sold telephone calling cards and other items. To give the Dream Homes Program a veneer of legitimacy and financial success, the defendants marketed the program through live presentations at luxury hotels in Maryland, Washington, D.C., and Beverly Hills, California, among other locations. The defendants allegedly told some of the investors that they should not worry about the price of the homes or monthly mortgage payments because MDH would make mortgage payments on their behalf.
The indictment alleges that the defendants failed to advise investors that:
- the ATMs, flat-screen televisions and kiosks never generated any meaningful revenue;
- the defendants used the funds from later investors to pay the mortgages of earlier investors (Ponzi scheme); and
- MDH had not filed any federal income tax returns throughout its existence.
The defendants also allegedly failed to advise investors that their investments were being used for the personal enrichment of select MDH employees, including the defendants, to:
- pay salaries of up to $200,000 a year as well as their mortgages;
- employ a staff of 10 chauffeurs and maintain a fleet of luxury cars; and
- travel to and attend the 2007 NBA All-Star game and the 2007 NFL Super Bowl, staying in luxury accommodations in both instances.
Nor were investors told that investor funds were allegedly used to:
- pay off investors in a prior failed ATM investment venture that Mr. Williams had founded called Bankcard Group;
- make multiple donations of up to $50,000 each to charitable organizations to allegedly give MDH the appearance of being financially successful; and
- fund investments in third-party businesses that had not been disclosed to investors.
On August 15, 2007, the Maryland Securities Commissioner issued a cease-and-desist order to Mr. Williams, MDH and other related companies directing them to immediately cease the offering and sale of unregistered securities in connection with their promotion of the Dream Homes Program. Despite that cease-and-desist order, the defendants continued to hold additional meetings in which they allegedly made additional misrepresentations about the financial success of MDH’s operations.
And, because these guys were not content to settle just for mortgage and bank fraud alone, they decided to also add perjury to the list of charges. On September 4, 2007, the defendants filed a legal challenge in federal court in Maryland to the cease-and-desist order. The indictment alleges that at a hearing on September 12, 2007, Mr. Hickson testified that the financial success of the Dream Homes Program did not rely upon new investor funds, when in fact Mr. Hickson knew that the sole source of meaningful revenue for MDH was new investor funds (hence, the perjury).
As a result of the scheme, more than 1,000 investors in the Dream Homes Program invested approximately $70 million. When the defendants stopped making the mortgage payments, the homeowners were left to attempt to make the mortgage payments MDH had promised to make in full.
An indictment is merely a formal charge by the grand jury. Each defendant is presumed innocent unless and until proven guilty in court. The four indicted defendants face a maximum sentence of 20 years in prison for the fraud conspiracy; 20 years in prison on each of the 15 counts of wire fraud (for a possibility of 300 years); and 20 years in prison for conspiracy to commit money laundering. Mr. Hickson also faces a maximum sentence of five years in prison for making false statements. Mr. Smith also faces a maximum sentence of 30 years in prison for bank fraud arising out of his alleged misrepresentation of his income in order to obtain a bank loan to purchase a new Bentley automobile. The indictment seeks forfeiture of the fraud proceeds, including $70 million.
This prosecution is being brought jointly by the Maryland and Washington, D.C. Mortgage Fraud Task Forces, which are comprised of federal, state and local law enforcement agencies in Maryland, Washington, D.C., and Northern Virginia. The Task Forces were formed to promote the early detection, identification, prevention and prosecution of various kinds of mortgage fraud schemes.
I will try to keep following this interesting case and post an update when the case is ultimately resolved, hopefully with all of the defendants getting long prison sentences.
------------------------------------------------
To learn more about a variety of real estate topics, please visit us at www.123ConEd.com. We are the leading online provider of Michigan real estate continuing education. All of our courses are fully approved and properly certified by the State of Michigan, and are offered online.
Copyright © 123 ConEd LLC 2009. All rights reserved.
Comments(5)