White Collar Crime News

Mortgage fraud crackdown continues July 28, 2009

Six people, including an attorney were charged by the FBI this week with wire fraud.  With many of these investigations, the allegations stem from incidents that occurred in 2005.  As 2010 nears, the Feds have to focus on cases from 2005 or risk running into the statute of limitations.

Of course, the mortgage industry didn’t fall apart until 2008, so we will see these cases crop up for years to come.

Press release:

Six Mortgage Industry Insiders Charged by FBI and IRS

NEWARK, NJ—FBI Special Agent In Charge Weysan Dun announced today the arrest of Daniel Verdia, Don Apolito, Jaye Miller, and Chrystal Paling (all on Tuesday, July 21), as well as the surrender of Robert Gorman and Philip Blanch (on Friday, July 24)—all in connection with a mortgage fraud scam operated out of an office in Hasbrouck Heights, New Jersey. All of the arrests occurred without incident. The six defendants are each charged with one count of wire fraud, in a joint investigation between the FBI and IRS titled “Operation Follow The Money.”

The investigation centered around activities occurring between February and September of 2005. According to the criminal complaint, the defendants obtained five mortgage loans by fraud between February and September of 2005 and deceptively converted the proceeds of those loans to their own use. This was done by first misrepresenting to the buyers and sellers the terms of the mortgage financing the purchase, the disbursements of the mortgage proceeds, and the source of the proceeds to pay off the mortgages, among other details. The second phase of the fraud involved falsifying information on the mortgage loan applications—namely the income and assets of the purchasers on the loans, the source of the down payments on new purchases, and the disbursements of cash related to the mortgage proceeds. The defendants allegedly accomplished their misdeeds through numerous interstate wire transfers. In the end, the only people who made a profit were Verdia, Miller, Apolito, Gorman, Blanch, and Palings.

Background

According to the complaint, Verdia, age 51, has owned and operated mortgage brokerage companies since 2001, beginning with Challenge Mortgage Services, LLC which was located at 377 Route 17, Hasbrouck Heights, New Jersey. Challenge later became Monarch Mortgage Services, LLC, which eventually moved to 1 International Boulevard, Mahwah, New Jersey in 2007. In February of that year, Verdia and his associates closed Monarch and opened The Mortgage Exchange at the same address.  While he operated Monarch at the Hasbrouck Heights location, Verdia also owned Capital Investment Strategies (CIS), LLC which operated out of the same office and purportedly was the source of funds for Verdia’s real estate ventures. According to the complaint, CIS is a shell company used by Verdia and his associates to fraudulently conceal money.

Defendant Jaye Miller, age 50, has actively worked with Verdia since 2000 and has functioned as a loan officer and loan processor within Verdia’s companies. Miller was also a 50% owner of CIS and endorsed checks made out to that entity—monies that were allegedly proceeds of fraudulent activity. Robert Gorman, age 60, has also worked in many of Verdia’s businesses. Gorman obtained information from the mortgage applicants and processed the applications. This involved knowingly signing and submitting applications with false information, according to the allegations. Don Apolito, age 37, has done business with Verdia since 2002 and operated a number of companies that supplied warehouse lines of credit that funded Verdia’s alleged fraudulent transactions. All three of the companies operated by Apolito—Nina Funding, Matrix Funding, and the Mortgage Exchange—were operated out of Verdia’s Hasbrouck Heights office. Additionally, the complaint alleges that Apolito also served the same function as Gorman: knowingly signing and submitting loan applications with false information. Attorney Philip Blanch, age 69, closed all of loans in question. It was his responsibility to ensure the legality of the transactions and to verify the accuracy of the information in the closing documents and disbursement of funds.  Blanch did this by signing the federal Uniform Settlement Statements (HUD-1) forms involved in the transactions.  However, the complaint alleges Blanch was well aware that information he “verified” on the HUD-1 statements was false. Crystal Paling, age 49, worked for Blanch. The complaint alleges that Palings recruited individuals to purchase and sell the properties that were the subjects of fraud in this case. The complaint also alleges that Palings authored many of the documents associated with these transactions and facilitated the wire transfers to and from Blanch’s trust account.

The Scheme

The following outline is based on allegations made in the criminal complaint.  In the simplest terms, a victim home owner (two of which in this case were suffering financial hardship due to medical expenses) was convinced by one of the defendants named above to either sell or refinance his or her home through Monarch Mortgage Services, LLC as part of a foreclosure bailout scheme. The defendants then recruited a straw buyer who was promised a sum of $5,000 for his or her participation. The defendants explained to the straw buyer that the original owner would repurchase the home after a short period of time when the owner had recovered from financial difficulties. The defendants also told the straw buyers that the mortgage payments for the newly purchased properties would be paid by Monarch. The defendants then falsified the financial information in the paperwork associated with the transaction. In one of the transactions, the falsified application was submitted to one of the companies under Apolito’s control, Matrix Funding, for loan approval and then later sold to an outside mortgage company. But in all other cases, the fraudulent applications were submitted directly to outside mortgage lenders. Once the loans were approved, the mortgage lenders wired funds to Blanch’s attorney trust account. At Blanch’s direction, Palings, would then wire all or most of the proceeds to CIS as a fee or payment. In the end, three of the victim homeowners received no compensation whatsoever for the sale of their homes. Furthermore, one of those three victims suffering financial hardship was lead to believe he was refinancing his home when in reality, he sold it for a 100% loss. The other two victims received a fraction of the money they were legitimately owed. The defendants, however, all received financial compensation for each of the five transactions.  None of the resulting mortgages from these five transactions were ever paid and all of them went into default. The total fraud in these five transactions is estimated at $1 million. 

“Those who are engaged in foreclosure bailout schemes are opportunistic thieves,” said Weysan Dun. “The defendants in this matter are charged with preying on the financially weak and desperate, our lending industry, and ultimately the taxpayers.To swindle people out of the roofs over their heads is just deplorable. But we will continue working with our partners in uncovering these schemes, bringing the fraudsters to justice, and educating the public.”

Acting SAC Julio La Rosa, IRS-Criminal Investigations stated, “We will continue to work closely with our law enforcement counterparts at the FBI to investigate allegations of mortgage fraud. These types of financial crimes add to the underground economy, erode the integrity of our tax system, and threaten the financial health of our communities.”