Aryeh Schottenstein and Shawn A. Griffin Plead Guilty! And the Ohio Mortgage Fraud Guilty Pleas Keep on Coming…

As a mortgage fraud speaker, I observe what’s taking place in the mortgage fraud arena, but I have to say, the legal eagles in Ohio are working the mortgage fraud angles hard…

Two more Columbus-area people indicted as part of a mortgage fraud scheme that secured more than $7 million in mortgage loans pleaded guilty in United States District Court. Aryeh Schottenstein, age 34, of Columbus, pleaded guilty to one count of conspiracy to commit wire fraud and one count of money laundering, and Shawn A. Griffin, age 38, also of Columbus, pleaded guilty to two counts of conspiracy to commit wire fraud and one count of money laundering.

Schottenstein and Griffin were indicted along with Donald F. Green, Jeffrey Lieberman and George “Terry” Jordan for a mortgage fraud scheme in central Ohio in 2003 and 2004. COMMENT: It seems that at the height of easy money for mortgages - mortgage fraud was rising as well. See what these folks did below as their crime is becoming a common pattern.

According to statements of facts filed with Schottenstein’s and Griffin’s pleas, Schottenstein and Lieberman owned a company called Parkview Bank. One of Parkview’s business purposes was to locate financing for real estate investors seeking to buy and renovate houses in Columbus. Parkview needed a source for the financing for this venture. In 2003, Schottenstein and Lieberman met with the managing partners for Stillwater Asset Backed Fund to convince them to provide the funding. They were successful.

Parkview and Stillwater entered into an agreement whereby Stillwater would provide the funding for Parkview’s deals. Rather than abide by the agreement and locate legitimate investors, Schottenstein used Griffin to recruit straw-buyers to pose as real estate investors. Using straw-buyers was quicker and easier than locating legitimate real estate investors thereby making it easier to generate more loan origination fees. The straw-buyers were told by Griffin they did not need to renovate the houses or make monthly interest payments. Griffin assured them he would take care of all the details.

COMMENT: Two things stand out - (1) impatience with legitimate business became the foundation of the fraud; and (2) the “straw buyers” were motivated by quick money in order to participate in the scam.

Griffin also recruited straw buyers in 2002 and 2003 for Jeff Pearson, now deceased. Pearson bought dozens of low-income distressed houses in Columbus for amounts at or near their fair market value. The houses were in need of renovation. Very little if any renovation was done to the houses. The houses were sold to Griffin’s straw-buyers for two to three times the amounts Pearson had paid only a few weeks or months earlier. Despite having good credit, the straw-buyers usually had little income. At the closing on the straw-buyers’ purchases of the houses, the title companies issued large checks payable to Pearson as proceeds from the sales.

Green pleaded guilty on April 11. Lieberman and Jordan pleaded guilty on April 24. All are free pending sentencing. Judge Marbley will set a date for sentencing. Conspiracy to commit wire fraud is punishable by up to five years in prison and the money laundering charges carry a maximum sentence of ten years in prison.

According to the Columbus Dispatch a scheme that investigators say bilked millions from banks, lenders and investors was so involved that there were too many fraudulent home purchases to list in the 36-page federal indictment.

Those indicted originally were:

Donald F. Green, 48, of Columbus, real-estate investor

Shawn A. Griffin, 37, of Cleveland, real-estate investor

Aryeh M. Schottenstein, 33, of Oak Park, Mich., real-estate investor

Jeffrey M. Lieberman, 56, of Bexley, real-estate investor

George T. “Terry” Jordan, 50, of Canal Winchester, real-estate agent

Dwayne L. Carter, 37, of Columbus, loan officer

Jonathan L. Boyd, 38, of Columbus, loan officer

Kenyatta Johnson, 37, of Michigan, loan officer

James Darneil Gaither, 37, appraiser

Every choice has a consequence. As a white collar crime and mortgage fraud speaker, I speak from first hand experience about the truth about consequences. Reality is - no one escapes the consequences of their choices. While Schottenstein and Griffin may have enjoyed the money for a time and avoided the consequences - they did not avoid the consequences all together. Prison is no fun and both are facing several years plus substantial restitution for this conviction. Likely they will serve time and that will prove to be a dramatic change from their prior activities. You do reap what you sow.

If you were a victim…please share your experience so other may benefit.

Mortgage Fraud Speaker - Chuck Gallagher - signing off…

Real Estate Agent - John Turner, Jr. - Sentenced to Prison for Mortgage - Bank Fraud

He walked in the door to Money Stop - a check cashing business - handed over a check for $62,000 and walked out with fifty-one $1,000 money orders, a money order for $365 and $9,992 in cash. When he walked out he had completed all that was necessary to effect bank fraud and earn a slot in federal prison.

Licensed real estate agent John Turner Jr., 52, has been sentenced to 18 months in federal prison for bank fraud and engaging in monetary transactions with criminally derived property stemming from a mortgage fraud investigation. In addition, Turner was ordered to pay a fine of $2,000 and serve a term of 3 years supervised release.

According to the US Attorney’s news release:

Turner arranged for a straw borrower to purchase the residence located on the 1600 block of Cherry Ridge Drive in Houston. Turner amended the purchase contract, instructing the title company to disburse $62,000 of the loan proceeds to a remodeling company of the buyer’s choice, ostensibly for repairs and upgrades to be made at the residence.

First National Bank of Arizona funded the $213,377 mortgage loan Nov. 17, 2006. At closing, Turner submitted a $62,000 false invoice in the name of First Class Construction Inc., for repairs and remodeling. The title company and First National Bank of Arizona were unaware that First Class Construction, Inc., was owned by Turner nor that the repairs and remodeling had not been done and would never be done.

Every choice has a consequence. As a white collar crime and business ethics speaker, I speak from first hand experience about the truth about consequences. Reality is - no one escapes the consequences of their choices. While Turner may have looked good for a time and avoided the consequences - he did not avoid the consequences all together. Prison is no fun and Turner is facing over a year in prison for his conviction. Serving time will prove to be a dramatic change from his prior activities. You do reap what you sow.

If anyone reading has any background on Turner - feel free to comment as I study the behaviors and backgrounds of those convicted of white collar crime.

White Collar Crime Speaker - Chuck Gallagher - signing off…

OPERATION HOMEWRECKER - FBI and IRS Announce Indictment of 19 in MORTGAGE FRAUD Related Offenses!

Every day there is more being reported about Mortgage Fraud. It is widespread and will take years to determine just how costly and extensive the problem is. Meanwhile, people, innocent people, are duped into losing their homes by falling for scams that are still widespread.

According to the FBI and IRS, 19 individuals were indicted for mortgage fraud-related offenses under Operation Homewrecker. The leader of this nationwide scam is Charles Head, 33, of Los Angeles, California, who targeted homeowners in dire financial straits, fraudulently obtaining title to over 100 homes and stole millions of dollars through fraudulently obtained loans and mortgages.

According to the FBI: “From approximately January 1, 2004 to March 14, 2006 , the defendants contacted desperate homeowners, offering two “options” allowing them to avoid foreclosure and obtain thousands of dollars up-front to help pay mounting bills. If the homeowner could not qualify for the “ first option,” which virtually none could, they would be offered the “second option.” Under the latter option, an “investor” would be added to the title of the home, to whom the homeowner would make a “rental” payment of an amount allegedly less than their mortgage payment, thereby allowing the homeowner to repair their credit by having the mortgage payments made in a timely fashion. Unfortunately all of this was a scam. The defendants would recruit straw buyers as the “investors” and oftentimes these individuals would in fact replace the homeowners on the titles of the properties without the homeowners’ knowledge. These straw buyers were often friends and family members of the defendants. Once the straw buyer had title to the home, the defendants immediately applied for a mortgage to extract the maximum available equity from the home. The defendants would then share the proceeds of the ill-gotten equity and “rent” being paid by the victim homeowner. When the defendants ultimately would sell the home, stop making the mortgage payment, and/or pursue an eviction proceeding, the victim homeowner was left without their home, equity, or repaired credit.”

The following defendants were charged in the February 28, 2008 “Head One” indictment: Charles Head, 33, of La Habra, California; Jeremy Michael Head, 30, of Huntington Beach, California; Elham Assadi, aka Elham Assadi Jouzani, aka Ely Assadi, 30, of Irvine, California; Leonard Bernot, 51, of Laguna Hills, California; Akemi Bottari, 28, of Los Angeles; Joshua Coffman, 29, of North Hollywood; John Corcoran, aka Jack Corcoran, 52, of Anaheim; Sarah Mattson, 27, of Phoenix, Arizona; Domonic McCarns, 33, of Brea, California; Anh Nguyen, 36, of Los Angeles; Omar Sandoval, 32, of Rancho Cucamonga, California; Xochitl Sandoval, 29, of Rancho Cucamonga; Eduardo Vanegas, 28, of Phoenix; Andrwe Vu, 39, of Santa Ana; Justin Wiley, 28, of Irvine; and Kou Yang, 32, of Corona, California.

“Head Two” involved an “equity stripping” scheme, netting approximately $5.9 million in stolen equity from 68 homeowners in states across the nation. While still targeting distressed homeowners and defrauding mortgage lenders through the use of straw buyers, this time Charles Head altered the scheme so that he would receive approximately 97 percent of the stolen equity, while his “sales agents” and employees, and the other defendants, would receive either the remaining 3 percent of equity or a salary from the fraudulently-obtained funding.

Instead of recruiting friends and family members as straw buyers, as in “Head One,” in “Head Two” the defendants recruited strangers via the Internet. They also used referrals from mortgage brokers to identify and solicit new victim homeowners. Beyond advertising on the Internet, the defendants also would send “blast faxes” to mortgage brokers throughout the country and generate mass emails to potential victims. Through material misrepresentations and omissions, victim homeowners would be offered what appeared to be their last best chance to save their homes. Unfortunately, as in “Head One,” these victims also were left without their homes, equity, or repaired credit.

On March 13, 2008, the federal grand jury returned a five-count indictment in “Head Two” against seven defendants, including Charles Head, John Corcoran, Kou Yang, each also charged in “Head One,” as well as Keith Brotemarkle, 42, of Johnstown, Pennsylvania; Benjamin Budoff, 41, of Colorado Springs, Colorado; Domonic McCarns, 33, of Brea; and Lisa Vang, 24, of Westminster.

A question has been raised as to whether there would be a nationwide Mortgage Task Force. It looks like California has taken the lead in this regard. In recent months, an Eastern District of California Mortgage Fraud Task Force has been established. This action was taken as a result of the significant increase in reported mortgage fraud as economic conditions and the housing market have worsened. Members of the task force include representatives from the U.S. Attorney’s Office, FBI, IRS-CI, the Department of Housing and Urban Development, the United States Bankruptcy Trustee’s Office, and the California Department of Real Estate.

“Mortgage fraud is a very real problem, both legally and economically. Federal law enforcement here in the Eastern District is fully committed to holding responsible those who in their greed have stolen from their fellow citizens. It is our duty to do all we can to restore faith and confidence in the marketplace by placing these thieves where they belong: in prison.” stated U.S. Attorney Scott.

Every choice has a consequence. As a white collar crime and business ethics speaker, I speak from first hand experience about the truth about consequences. Reality is - no one escapes the consequences of their choices. While Head and others may have looked good for a time and avoided the consequences - they did not avoid the consequences all together. Prison is no fun and Head and other are facing 10++ years plus substantial restitution for a conviction in this case. Likely they will serve time and that will prove to be a dramatic change from their prior activities. You do reap what you sow.

If anyone reading has any background on Head and his co-defendants or was defrauded by them - feel free to comment as I study the behaviors and backgrounds of those convicted of white collar crime.

White Collar Crime Speaker - Chuck Gallagher - signing off…

Multi-Million Dollar Mortgage Fraud Scheme Verdicts - GUILTY! Austin, Texas Jury Finds Five Guilty

Every choice has a consequence. The rampant spread of mortgage fraud is no different. Unethical practices and outright blatant fraud brought a guilty verdict to several Texas area individuals.

• Cornelius Robinson, age 47, of Austin, Texas, who was the leader and organizer of the fraud scheme. Robinson was convicted of conspiracy to make false statements related to a loan, conspiracy to commit wire fraud, five substantive counts of wire fraud, 9 substantive counts of false statements related to a loan, one count of aiding and abetting the receipt of commissions or gifts from loans by a bank employee, conspiracy to commit money laundering and 7 substantive counts of money laundering.
• Michael Breon, age 39, formerly of Austin and a current resident of McKinney, Texas, and a straw purchaser. Breon was convicted of conspiracy to make false statements related to a loan, one count of wire fraud and one count of conspiracy to commit money laundering. Breon, a licensed loan officer and mortgage broker, was employed by several different loan origination and mortgage companies during the conspiracy.
• Sindu Sukumaran, age 36, wife of Michael Breon and a straw purchaser. Sukumaran was convicted of wire fraud.
• Marlon Nathan Torres, age 45, of Hutto, Texas, a licensed real estate agent and buyer and seller of real estate in the Austin area. Torres was convicted of one count each of conspiracy to commit money laundering and money laundering.
• Jeffrey Andre Wilkins, age 46, of Austin, a cousin of Cornelius Robinson and a straw purchaser. Wilkins was convicted of one count each of conspiracy to make false statements related to a loan, conspiracy to commit wire fraud, false statement related to a loan, conspiracy to commit money laundering and money laundering.

Eleven co-defendants plead guilty to other mortgage fraud related charges. They are:

• Silvia Seelig, age 45, of Austin, and wife of Cornelius Robinson who during the conspiracy, was a licensed real estate agent and a straw buyer;

• George H. Watson, age 55, of Austin, a licensed attorney who specializes in real estate transactions. Watson served as the closing attorney on most of the real estate transactions described in the Indictment;

• James Douglas Atwood, age 51, of Austin, Cornelius Robinson’s uncle and a straw buyer;

• Doris Ann Hill, age 40, of Austin, a personal banker employed at Wells Fargo Bank. For a fee, Hill agreed to provide a false verification of deposit to loan underwriters in relation to three real estate transactions involving defendant Snead;

• Julius Meyers Lofton, a 45-year-old licensed real estate agent living in Austin and a straw buyer;

• Roy Rivers, age 52, of Austin, and a straw buyer;

• Danielle Guice Rosas, age 40, of Austin, and a straw buyer;

• Stanley Ma, age 27, of Honolulu, Hawaii and a straw buyer;

• Leonard Brown, age 38, of Houston, Texas, who provided a false verification of employment in association with Onyx Consulting and defendant Ma;

• Russell Snead, age 43, of the Seattle, Washington area and a straw buyer; and,

• Leroy Williams, age 46, of Austin and a straw buyer.

According to the US Attorney’s office: From September 1999 to present, the defendants participated in a scheme to defraud mortgage lenders, including federally insured financial institutions, with regard to loans acquired to purchase 25 properties in the Austin and San Antonio area. The scheme centered upon the use of real estate “flips.” That is, the defendants purchased property at one price and would immediately sell, or “flip,” the property to a “straw buyer” at a higher price. In doing so, the mortgage lenders were deceived as to the true nature of the transaction and the financial status of the “straw buyer.” The straw buyers did not make the subsequent monthly mortgage payments
and all of the loans have gone into default. All of loans have been either foreclosed upon or are the subject of current foreclosure proceedings.

As previously reported on this blog - The Mostly Texas Sixteen have now seen the indictment turn into either guilty pleas or guilty verdicts. My guess is that most will face active prison sentences with the longest sentence being reserved for Cornelius Robinson who I suspect will face 10+ years - perhaps longer.

Every choice has a consequence. As a white collar crime and mortgage fraud speaker, I speak from first hand experience about the truth about consequences. Reality is - no one escapes the consequences of their choices. While Robinson and others may have avoided the consequences of their actions for a time, they did not avoid the consequences all together. One thing is for sure, you do reap what you sow.

As those who pleaded guilty will be sentenced on June 6th and those just found guilty will be sentenced on June 20th - they will soon know just what their fraudulent actions will bring to them in the form of prison consequences.

If anyone reading has any background on Robinson - feel free to comment as I study the behaviors and backgrounds of those who are accused of unethical conduct and white collar crime.

White Collar Crime and Business Ethics Speaker - Chuck Gallagher - signing off…

White Collar Crime - A Week In Review - March 17 - 23, 2008 - Comments by Business Ethics and White Collar Crime Speaker Chuck Gallagher

It doesn’t seem that White Collar Crime takes a holiday - even if it is Saint Patrick’s Day and Holy Week combined. Wonder if that confounds Irishmen around the world? Sorry, I digressed - back to the week in review.

Ft. Lauderdale, Florida: Seven were indicted on a credit-card fraud and identity theft scheme. They were: Dondre Green, Widley Francois, Michael Georges, Nigel Sookdeo, David Berry, Caddrick Spivey and Monique Thomas. Dondre Green, a U.S. Mail Carrier, stole credit cards out of the mail entrusted to him as a postal carrier, from victims who lived on his delivery routes. Thereafter, these credit cards were delivered to co-conspirators who recruited “shoppers” to make purchases at local businesses utilizing the stolen credit cards. Often, these “shoppers” would make either large purchases of gift cards from the Target Department store, where they were assisted by other co-conspirators who were Target employees. These co-conspirators overrode Target’s internal security controls, or would purchase other goods and services utilizing counterfeit Florida Driver’s licenses in conjunction with the stolen credit cards. Ultimately, the scheme’s participants were responsible for fraud losses in excess of $150,000. Keep in mind, an indictment is not a finding of guilt and all are presumed innocent until found guilty.

San Francisco, California: Stephanie Jensen, the former human resources vice president at Brocade Communications Systems, Inc. of San Jose, California, was sentenced to four (4) months in prison and ordered to pay a $1,250,000 fine stemming from her fraudulent backdating of stock options at Brocade. Now, let me state that while four months in prison seems insignificant - it is not. This former Human Resources person is now a convicted felon and is facing a huge fine along with the discomfort of prison. Also, keep in mind, in August 2007, former CEO Gregory Reyes was convicted after trial for criminal charges stemming from the same wrongful conduct.

San Francisco, California: W. Scott Harkonen, M.D., the former CEO of InterMune, Inc., was indicted on wire fraud and felony Food, Drug, and Cosmetic Act charges for his role in the creation and dissemination of false and misleading information about the efficacy of InterMune’s drug Actimmune (Interferon gamma-1b) as a treatment for idiopathic pulmonary fibrosis. According to the indictment, defendant Harkonen promoted and caused the promotion by InterMune of Actimmune as a safe and effective treatment for IPF, despite the lack of FDA approval, in order to sell more Actimmune and to generate revenues and profits from sales of Actimmune for InterMune. The cost of Actimmune for one IPF patient for one year was approximately $50,000 and the vast majority of InterMune’s sales of Actimmune were for the unapproved, off-label use of treating IPF. The full press release from the US Attorneys office is here. While an indictment is not guilt - this is one doctor whose passion for “good” may have been overwhelmed by “greed.”

Atlanta, Georgia: 12 years in federal prison and $29 million in restitution is what Travis E. Correll, age 31, of Atlanta was sentenced to for his role in a massive Ponzi scheme. From late 2001 to December 2005, CORRELL operated an investment program known as “Horizon Establishment,” which offered high monthly rates of return to investors. CORRELL falsely represented that he would invest investors’ principal in high-yield programs with foreign banks, which were regulated differently than United States financial institutions, thus enabling such foreign banks to pay extraordinarily generous returns. CORRELL promised the investors that they would receive a monthly return on their investments of between 4 and 8 percent, and ultimately be refunded their invested principal. In less than 5 years, he took in over $100 million in investment money from private individual investors. Almost from the beginning, CORRELL operated Horizon as a “Ponzi” scheme, using investment money received from later investors to pay substantial returns to some of the early investors. Federal investigators estimate that CORRELL recirculated approximately $71 million to investors, resulting in losses of approximately $29 million.

Named after Charles Ponzi, a ponzi scheme is a fraudulent investment operation where high returns are promised to investors and usually paid out of other investors money rather than from profits generated from the investment promised.

Honolulu, Hawaii: Now…as a white collar crime speaker, I written about and seen alot, but this one has to be the report of the week. Patricia Pendleton, age 79, to 5 years probation and six months of home detention with electronic monitoring following her guilty plea to improperly receiving social security benefits from 2002 to 2006. Pendleton was also ordered to make restitution in the amount of approximately $46,000. Yes…that’s age 79. Now I can safely say that six months of home detention won’t be too hard, but $46,000 in restitution from someone who appears to be living off of social security - well, that’s tough. I can’t help wonder (assuming she had other family) what they must be thinking? Anyway, here’s the scoop - Pendleton was sentenced for using two different identities and social security numbers in order to receive social security pensions resulting in an overpayment of approximately $50,000 to her. She had received widowers benefits based upon her marriage to a deceased former wage contributor to the social security system. These benefits were electronically deposited into a First Hawaiian Bank account. Pendleton also received benefits based upon her own wage earner contributions to the social security system but under a fictitious name and a falsely acquired social security number which were electronically deposited into an American Savings Bank account.

But there’s more! This was conceived and in place years ago. Pendleton, a former tax auditor for the state and private industry, started using the fraudulent identity and falsely acquired social security number in the 1960s and began collecting the benefits in the late 80s and early 90s while in her 60s. Hum…well isn’t that interesting.

Chicago, Illinois: The United States, 23 states, and the District of Columbia will receive $36.7 million from CVS Caremark Corp., of Woonsocket, Rhode Island, to settle Medicaid prescription-drug-fraud claims initiated by a whistleblower, federal and state officials announced today. CVS Caremark, which operates over 6,000 retail pharmacies throughout the United States, allegedly substituted capsules of Ranitidine (generic Zantac) for tablets solely to significantly increase the cost and profit rather than for any legitimate medical reason. The settlement covers CVS Caremark’s submission of reimbursement claims to Medicaid programs from April 2000 through December 2006. The officials noted that CVS Caremark did not admit liability as part of the settlement.

The individual, or so-called “relator,” who initiated the case by filing his own separate lawsuits, will receive a share of the settlement from both the United States and the states that have their own whistleblower statutes. Relator Bernard Lisitza, will receive $4,309,330.74 as his share of the federal and state settlements. Wow…I never know that being a whistleblower was so profitable.

Louisville, Kentucky: White collar crime doesn’t seem to be limited by age. Willie Collins, age 76, was sentenced to 2 years and 1 day in federal prison for his participation in a mortgage fraud scam. Collins pled guilty to charges related to his involvement in the stealing of the identity of the owners of homes in Indian Hills and the Cherokee Triangle to facilitate three fraudulent loan closings on the properties. He, along with James C. Hardison, Freddie Johnson, and Marilyn Rainey, were able to effectuate their scheme by also stealing the identity of a Southern Indiana man so that Hardison could pose as a buyer at the closing, while Rainey posed as the actual owner of the property. Using these stolen identities, Hardison, Rainey, and Collins participated in multiple closings on these properties. At the closing on the Indian Hills home, they attempted to obtain a loan in the amount of approximately $403,000. At the first closing on a home in the Cherokee Triangle, they were able to obtain approximately $290,000 in loan proceeds. They obtained a second loan from a different lender on the same Highlands home, but were arrested by the Louisville Metropolitan Police Department (LMPD) before they could withdraw these funds. Hardison’s role in the scheme was to arrange the loans and pose as the buyer of the property. Johnson’s role in the scheme was to recruit Rainey to pose as the buyer of the property and to recruit Collins to open a bank account in Louisville so that they could cash the check that they obtained from the closing.

Johnson and Rainey were sentenced on November 2, 2007. Johnson was sentenced to 6 years and 3 months imprisonment, plus 5 years supervised release; and Rainey was sentenced to 2 years and 1 day imprisonment, plus 5 years supervised release following incarceration. Johnson was also ordered to pay restitution to Homecoming Financial in the amount of $303,704.57.

St. Bernard, Louisiana: Failure to file tax returns is a criminal offense and generally results in an active prison sentence. Clifford E. Clayton, age 63, of St. Bernard, Louisiana pled guilty to failure to file tax returns for 1999, 2000 and 2001. According to the factual basis, the defendant knew that he was required to file returns and that he received sufficient wages which were in excess of the minimum filing requirement requiring the defendant to file tax returns at the time required by law. Specifically the defendant’s taxable income for 1999 was $717,104 resulting in a tax due of $281,855; for 2000 was $483,860 resulting in tax due of $145,815; and for 2001 was $411,671, resulting in a tax due of $181,057. Much like Wesley Snipes who is scheduled to be sentenced for his conviction for failure to file tax returns, Clayton is facing a maximum term of imprisonment of three years.

Coon Rapids, Minnesota: O.K., I don’t know where that is either, but white collar crime is there too! It seems that Mark W. Gillick, age 52, was convicted and sentenced to 33 months in federal prison for defrauding investors of more than $800,000. Gillick fraudulently offered and sold what he represented as the stock of Virtual Assistant Corp., a privately-held company that manufactured medical devices, between December of 2002 and April of 2005. Gillick was responsible to assist others in starting the corporation, but was not authorized by the company to issue and sell its stock.
Gillick contacted investors by telephone, e-mail and in person in order to persuade them to invest, and provided investors with false documents in support of the scheme. Gillick instructed investors to make checks payable to both himself and the company, which he deposited into his personal checking account, and used to purchase homes and cars, pay college tuition and travel. When investors asked for their money back, Gillick told them the funds were not available for various reasons.

Jefferson City, Missouri: This case has an interesting twist. Seems that Clayton J. Deardorff, age 30, had been incarcerated in state prison. Well, Deardorff, seeing an opportunity to serve the inmate population, partnered with Erica Daniece Kelley, age 29, who was formerly employed by the Missouri Department of Revenue, in an effort to steal identities in order to - provide cell phone service to state prison inmates. Wow! Now, not proud of this fact, but having been an inmate in federal prison - all we had access to was a monitored collect call system. So, I am amazed that any inmate would somehow have access to a cell phone or that anyone would think that providing such a service would make sense. If anyone knows of inmates with cell phones please comment!

And finally, as I am tired of the volume this week - perhaps there will be a follow up.

New York, New York: Former KPMG partner ROBERT PFAFF was indicted with participating in a conspiracy to defraud the IRS by concealing fee income received by PFAFF and his co-conspirators from tax shelter transactions. PFAFF was also charged for conspiring to defraud a company located in Saipan (part of the Commonwealth of the Northern Mariana Islands (”CNMI”)) (the “Saipan Company”) of the right to the honest services of its employees, by sharing tax shelter fee
income with officers of that company who failed to disclose those secret payments to the Saipan Company’s Board of Directors.

According to the indictment and the news release from the US Attorney’s office:

PFAFF and his co-conspirators employed a number of fraudulent means in order to conceal the receipt of tax shelter fee income by PFAFF and his co-conspirators from the IRS and other taxing authorities, including the tax authorities in the CNMI, and in order to allow the Saipan co-conspirators to defraud the Saipan Company and its shareholders of their intangible right to the honest services of its officers and employees. PFAFF and his co-conspirators’ efforts to conceal the tax shelter fee income included causing millions of dollars of tax shelter fee income to be sent from bank accounts in the United States and the CNMI to bank accounts in Manila, Philippines (the “Philippines bank accounts”) — accounts which were controlled by the Philippines co-conspirator and others. PFAFF and his coconspirators requested that the Philippines co-conspirator, in exchange for fees, disburse the tax shelter fee income from the Philippines bank accounts in accordance with instructions of PFAFF and his co-conspirators, including instructions that checks and demand drafts be drawn on, and wire transfers be made from, the Philippines bank accounts and directed to individuals and entities designated by PFAFF and others. PFAFF and his coconspirators also created false and fictitious documentation to make it appear that the fee income PFAFF received from via the Philippines co-conspirator was part of a series of loans rather than income to PFAFF – which income he failed to report on his tax returns. PFAFF also provided false testimony to the IRS regarding PFAFF’s receipt of fee income stemming from the tax shelter transactions. Further, PFAFF and his co-conspirators caused the payment of the tax shelter fee income to PFAFF to be concealed from KPMG, in violation of KPMG’s partnership bylaws and/or rules and procedures, and caused the payment of the tax shelter fee income to the Saipan co-conspirators to be concealed from the Saipan Company.

Every choice has a consequence.
In the middle of a rising career, Gallagher lost everything because he made some bad choices. He has since rebuilt his career and his life back to immense success. With more vulnerability than the average keynoter, Gallagher shares with his audiences his life journey, the consequences of his unethical choices, and how life gives you second chances when you make the right choices.

Having captured the attention of audiences from coast to coast, Chuck is an inspirational motivational speaker with a dynamic ethics message. As a business ethics speaker and sales motivational speaker, Chuck’s business and personal experiences over 30 years provides a powerful framework for presentations, workshops and consulting. Understanding the business and ethical challenges facing organizations today, whether corporate, government or association, Chuck, as a motivational keynote speaker, delivers a message that focuses on the pressing issues tailored to the client’s need.

Your comments are welcome!

 

 

Mortgage Fraud - Real Estate Flipping Earns Gary Knox 235 Months and Frank Ciota 97 Months in Federal Prison!

It isn’t surprising that with the down turn in the housing market, the formerly free money for real estate deals and the vast number of people promoting wealth through real estate, that now we see what was expected fall out - mortgage fraud.

Frank Kelly Ciota, age 47, was recently sentenced to 97 months in federal prison for his involvement in a real estate “flipping” scheme involving properties in Illinois. Now, if you feel that 97 months is a lot - just look at what his co-defendant got. Gary Knox, age 61, for his role was sentenced to 235 months in federal prison - that’s 19 years and 7 months! For a 61 one year old man…that very well might be a life sentence!

Knox was ordered to pay $1.9 million after his conviction in 1992 on similar charges. No wonder he got the maximum sentence. In fact, Judge McCuskey recited Knox’s criminal history, starting in 1971, when Knox pleaded guilty to exposing himself to a waitress at Elam’s, a former root beer stand in Decatur, when she brought an order to his car. He said Knox underwent treatment and made the system believe he would not reoffend, but committed indecent exposure twice more in 1975 in Bloomington.

From April 1975 to April 1976, Knox embezzled $9,000 from Decatur Memorial Hospital while working as a patient accounts clerk, McCuskey said. At age 30, Knox had found the “beginning of the easy way, the dishonest way, of getting money,” he said.

Knox was convicted of federal mail fraud in a real estate pyramid scheme that began in 1988 in Pekin and bilked people of $1.9 million, for which he received 60 months in prison, McCuskey said. He noted that as a state judge, he had sentenced repeat retail theft offenders to that long a term.
Dennis Wiese, Jr., age 39, also a co-defendant who performed real estate appraisals has not been sentenced yet. After these two sentences, I can’t imagine what is going through his mind.

According to the US Attorney’s office, the three defendants each pled guilty to their respective roles in the scheme which involved more than 150 fraudulent real estate sales and financing transactions of more than $8 million from 1999 to 2005 in Springfield and Decatur, Illinois. Knox represented himself and his business, Central Illinois Management and Development Company, as being in the business of buying, selling and managing real estate; however, he was not a licensed real estate broker or salesperson. Knox and Ciota obtained more than $3 million for their personal use and to promote the ongoing scheme while Wiese received fees of $350 to $450 per appraisal.

$3,000,000 for personal use earned 8 to 19+ years in federal prison. Seems to be that, considering restitution would be required, the cost in loss of freedom was far greater than any short term gain that might have been enjoyed.

According to reports, the three men admitted engaging in a practice known as “flipping,” which involved making false representations, including fraudulently inflated real estate appraisals by Wiese which were used by Knox and Ciota to entice owners to sell, buyers to purchase, and lenders to finance rental properties that were sold at substantially higher prices than their reasonable value.

Every choice has a consequence. As a white collar crime speaker, I know first hand the effect of choice and the consequences that follow. It is clear from the record that Knox didn’t learn from his earlier fraudulent activities - other than perhaps how to do them more effectively and longer. That isn’t the lesson to be learned. There is a universal law that we are governed by - You reap what you sow. In this case Knox has reaped the rest of his life in prison. Sad!

Do your employees make the best choices for your company—or for themselves? Are you ready for some straight talk about success, choices, and ethics from a business executive who lost it all…and gained more than he could ever imagine?
In an unusually vulnerable style, Chuck Gallagher explores the decisions we make through the veil of honesty, integrity, and ethics. Your audience will be touched by his personal stories and poignant lessons.

For information about my presentations, visit my website - www.chuckgallagher.com