Mortgage and Investor Fraud – Judge Throws The Book At Charles Cooper Burgess – 22 Years in Federal Prison!

Over $2 million in lender losses costs Charles Burgess, age 52, 22 years in federal prison and $3 million in restitution – his time in prison could well be the end of his life. U.S. District Judge Barbara M. G. Lynn, told Burgess that many victims wanted her to “throw the book at him,” and that is exactly what she intended to do.

Emotional victims told Judge Lynn about the emotional and great financial harm that Burgess’ fraud had inflicted on their lives. Not only did his fraud cost them monetarily, but, as a result of betrayed trust, they found it more difficult to trust people. Judge Lynn called Burgess a “slick talker, liar, con and cheat.” Judge Lynn said Burgess’ fraudulent conduct was horrible in that he took advantage of people who trusted him and she went on to say that she sees many dangerous people, such as drug dealers, and that Burgess is in the “top five” of the worst defendants she has sentenced.

Mortgage Fraud! According the the US Attorney, Burgess admitted to recruiting straw buyers with good credit but limited funds to sign loan and closing documents to purchase homes. As part of a signed “investor management agreement,” Burgess promised to provide the down payment at closing as well as make all mortgage payments. Burgess, and other convicted defendants (Mark Manners and Andrew Siebert), paid each of these straw buyers between $5000 and $10,000 “for the use of their credit” after the closing. When Burgess’s company ran out of funds for the needed downpayments on these loans, Siebert agreed to release escrow funds to Burgess for the borrowers’ down payment. Burgess testified that Siebert would only agree to fraudulently release these escrow funds if Burgess agreed to pay Siebert $5000 from each closing as a “kickback payment.” Evidence at trial showed that defendant Siebert fraudulently released escrow funds on 20 separate loans.

Siebert fraudulently released lender funds held in escrow to Manners prior to closing so that he could purchase a cashier’s check in the name of the straw buyer. When Siebert received the cashier’s check back from Manners, Siebert would complete the transaction, falsely certifying to the lender on the settlement statement that the down payment came from the borrower. On the settlement statement, Siebert also fraudulently accounted for disbursements to Burgess’ company by falsely listing the expense as a phony lien pay off, or as a “marketing and relocation fee” due to Burgess’ company. Eleven different lenders testified at trial that Siebert falsified the settlement statements to conceal his wrongful and fraudulent release of lender escrow funds. Each lender testified that the loan would never have been funded if the lender had known about the fraudulent use of lender escrow funds.

From December 2002 through March 2004, Siebert fraudulently released a total of $1.6 million in lender escrow funds as part of the fraudulent scheme. As a result of Siebert submitting false certifications on settlement statements for each of these 20 loans, Siebert and Manners fraudulently induced the disbursement of loans totaling more than $7 million. Losses to lenders from foreclosures on the properties exceed $2 million.

Investor Fraud: Oh, but Burgess didn’t stop his criminal activities there. Burgess also pled guilty to a fraudulent scheme involving the sale of golf course property in Arkansas. The property used to defraud investors was the Mallard Point Golf Course owned by Jay Lucas. Burgess created and executed a scheme to defraud investors during January through December 2004.

Directly and through salesmen, Burgess solicited individuals throughout the U.S. to invest in the Mallard Golf Development Project. As part of the scheme to defraud, Burgess prepared, and caused to be prepared, contracts to be signed by Project investors. In addition, Burgess made, or caused others to make, many false and fraudulent representations and promises to investors in the Project. Burgess falsely represented to investors that Select Homes owned, or had an option to own, lots on the Mallard Point Golf Course.

Burgess persuaded investors to give him funds by deceiving them about the extent of his true ownership interests in the golf course. As part of his scheme, it was important that Burgess conceal from investors the truth that Burgess lacked any ownership interests in the golf course. Burgess also concealed that investment funds would be used for other purposes completely unrelated to the development of the golf course, namely, to pay Burgess’ personal debts and to pay off investors in connection with Burgess’ prior ventures.

Choices and Consequences: As a White Collar Crime speaker and fraud consultant, I see so often the end result of choices made and have never found anyone who make poor choices like the resultant consequences. At the time of the crime, more times than not, the white collar criminal does think that he or she has outsmarted the system. It appears obvious that all three felt that somehow they would get by. The deception of ego is often the beginning of the end. The deception can be so mentally profound that ones fails to recognize truth. Just like the law of gravity, there is a fundamental truth that evades the “smarter than the system” criminal. That truth is – every choice has a consequence!

More times than not there are tell tail signs that a fraud is unraveling. While I was not personally close to this case, I have studied the science of fraud and crime enough to know that external markers often precede the downfall of the criminal. Whether lifestyle or desperation, many times the white collar criminal will esclate the crime in order to meet the perceived need. That’s when it all falls apart. But there are methods that can decrease the likelihood of fraud being committed in an organization. In all cases, you reap what you sow.

In this case, do you believe that justice was done?

Your comments are welcome!

60 Minutes and a Guilty Verdict! Stephen Michael Ewing Facing Prison

As a white collar crime speaker (I address groups on white collar crime, fraud and how to avoid it), I have followed closely the trial of Stephen Michael Ewing, Gary Trebert and Larry May – all charged with massive tax fraud – $34 million to be exact.

According to the US Attorney’s office, the government presented evidence that beginning in August 1999 and continuing through mid-May 2004, Ewing, along with co-defendants, Gary Trebert and Larry May, conspired together, and with others, to defraud the U.S. by impeding, impairing, obstructing, and defeating the lawful government functions of the Internal Revenue Service (IRS) in the ascertainment, computation, assessment, and collection of the revenue, that is, nursing facility employees’ withheld income taxes, social security taxes and medicare taxes, and the Department of Health and Human Services (HHS) in the administration of the Social Security Act and the Medicare and Medicaid programs.

Both Trebert and May plead guilty and Trebert agreed to cooperate with the federal government in the prosecution of Ewing in return for a 2 year reduction in his 10 year sentence. May is scheduled to be sentenced on April 28, 2008; Trebert is scheduled to be sentenced on July 14, 2008.

Unlike the others, Stephen Michael Ewing elected to plead not guilty and take the issue to trial. He was found Guilty!

Again, according to the US Attorney, both Trebert and May testified against Ewing at trial. Trebert testified that he and Ewing repeatedly discussed the creation and the overseas payroll companies to interfere with IRS efforts to collect the payroll taxes. Trebert also testified that Ewing once boasted about having previously operated nursing homes without having to pay the payroll taxes. Larry May testified that Trebert and Ewing made him president of the company, even though he told them he was not qualified.

May further testified that, during some of the periods covered by the Indictment, he was making $10,000 to $25,000 per month for doing little more than signing documents, including tax returns, and taking tax returns to England to mail back to the IRS in the U.S. More than 150 sham staffing/payroll entities, many with foreign business addresses at drop boxes in England and Austria, were created to file Form 941 employer withholding tax returns with the IRS, preventing the IRS from assessing and attempting to collect more than $34 million of unpaid payroll tax liabilities from Trebert, Ewing and May, and creating the appearance that these sham staffing/payroll entities employed more than 4500 nursing facility employees, when they did not.

Were they the smartest guys in the room? Often I have been asked that question and the answer is – Yes! At the time of the crime, more times than not, the white collar criminal does think that he or she has outsmarted the system. It appears obvious that all three felt that the offshore shame companies would be so hard to trace that somehow they would get by. The deception of ego is often the beginning of the end. The deception can be so mentally profound that ones fails to recognize truth. Just like the law of gravity, there is a fundamental truth that evades the “smarter than the system” criminal. That truth is – every choice has a consequence!

More times than not there are tell tail signs that a fraud is unraveling. While I was not personally close to this case, I have studied the science of fraud and crime enough to know that external markers often precede the downfall of the criminal. In the case of these defendants, they diverted to themselves and their personal activities substantial sums of money derived from their nursing home operations and from the non-payment of employees’ withheld payroll taxes. At trial, the government presented evidence that, during the period covered by the Indictment, Ewing spent more than $2.5 million in money derived from the nursing home operations on his personal expenses. The total expenditures included more than $200,000 at department stores such as Saks Fifth Avenue, and more than $250,000 on automobiles.

You reap what you sow. In this case, justice was done – eventually.

Your comments are welcome!