John Richard Varner former President of Inland Empire Mortgage sentenced to 13 years in prison for Fraud costing nearly $30 Million in Losses at HUD

The former president of Mortgage One Corporation, John Richard Varner, 56, of Hesperia, was sentenced to 156 months in federal prison for defrauding the United States Department of Housing and Urban Development and private lenders by fraudulently obtaining hundreds of federally insured loans and selling those mortgages to private lenders in a scheme that caused tens of millions of dollars in losses to the federal housing agency.  In addition to the prison sentence, Judge Phillips ordered Varner to pay $29,749,239 in restitution.

Last April, following a nearly four-week trial, a federal jury convicted Varner of one count of conspiracy to defraud HUD, one count of bank fraud and two counts of subscribing to false income tax returns. Varner was the fifteenth defendant convicted in relation to the scheme. Varner and co-defendant Richard Elroy Giddens, 69, of Riverside, were at the center of the fraud that was run out of Mortgage One Corporation, which was based in Hesperia, and M-1 Capital Corporation, which was based in Riverside and Rancho Cucamonga. Giddens, the former CEO of Mortgage One, pleaded guilty to the same charges Varner was convicted of at trial and in September 2009 was sentenced to 78 months in federal prison.

From 1997 until 2002, Mortgage One and M-1 Capital were in the business of approving, funding and then selling home mortgage loans, typically obtaining mortgage insurance on the loans from the Federal Housing Administration, which is an agency within HUD. Mortgage One and M-1 Capital obtained FHA mortgage insurance for their loans without HUD review due to their status as HUD-approved Direct Endorsement Lenders. They obtained and kept Direct Endorsement Lender status by submitting false documents, including bogus audits, to HUD.

Varner and his co-defendants defrauded HUD by submitting fraudulent loan application documents in order to qualify the loans for FHA insurance. The loans went to borrowers who either did not meet the FHA requirements to qualify for the mortgages or were only “straw buyers.” Mortgage One and M-1 Capital sold the funded loans to banks, such as the FDIC-insured Firstar Bank, N.A. and Chase Manhattan Mortgage Corporation, using the same fraudulent documents.

As a result of the scheme, HUD lost $23,628,857 on 905 fraudulent loans, and a total of $29,638,011 when interest paid by HUD during the foreclosure and resale process is included.

Varner was found guilty of filing false tax returns for the years 1999 and 2000 when he failed to report income that he used for personal expenses such as a Corvette, a $153,000 RV, jewelry and more than $150,000 deposited into a personal investment account.

In sentencing papers, prosecutors argued that Varner’s testimony at trial last year “consisted of a series of breathtaking lies that appeared designed to shift responsibility for defendant’s crimes to others and to mislead the jury about the true facts.” For example, Varner “denied knowingly approving fraudulent loan applications, despite testimony from numerous brokers that they discussed the fraud in the loan files and [Varner] indicated they should continue to submit the fraudulent loan files,” according to court documents that concluded Varner “gave blatantly false testimony.” At this afternoon’s sentencing hearing, Judge Phillips agreed with prosecutors, finding that Varner’s testimony “was knowingly untruthful on a number of points.”

Every choice has a consequence…and the consequence here, beyond the monetary losses are lives that are financially, ethically and morally destroyed.  Not only did Varner earn a bed in federal prison, but those connected with his scheme have suffered as well.

If you worked for Inland Empire Mortgage, Mortgage One or M-1 – here’s a question.  Did you see any evidence that something was not right when it came to the business at hand?

Your comments are welcome.


8 Responses to John Richard Varner former President of Inland Empire Mortgage sentenced to 13 years in prison for Fraud costing nearly $30 Million in Losses at HUD


    This article was great. I have been searching for just this sort of article.Thank you for this information.

  2. Jay Symes says:

    I spent time in prison with Mr. Varner and his character is rather tainted by an article such as this. John Varner is a God fearing Christian with high morals. He truly cares about others, and he has great love for his family. You need to know facts that were not permitted in his trial. All of the witnesses he had subpoenaed to testify on his behalf were blackmailed by the prosecution such that if they testified, they too would be indicted for conspiracy to defraud. (A crime the feds say nets a 10 year penalty) However, Mr, Varner got 13? Sentencing guidelines be damned! I want you all to know that his attorney was neither schooled in real-estate dealings, nor were they wise enough to know when their client was being railroaded in kangaroo court. And moreover, the agents responsible for allowing the fraudulent 11 out of 400,000 home loans to get through the system are either dead or were not allowed to testify during Mr. Varner’s sham of a trial.

    More than 60 million dollars worth of Mr. Varner’s personal assets were seized yet the FBI and other “law enforcement” agencies seek more.

    The insult to injury comes when i tell you there was no loss on the part of the investors. The titles of any houses that went into default based on the homeowner’s inability to pay were claimed by these investors and lenders. The houses still has their market value after such seizure, and many appreciated in value. Thus there was no loss of income. in fact, they all MADE MONEY! Saying there should be restitution based on projected profits is the same as making a claim on a near miss car accident. It simply never happened.

    Use your brains fair readers, there is an underlying story you are not allowed to hear. Those who would gain revenue from Mr. Varner and those like him want these facts to be swept under the rug.

    • Jay:

      The reason he got 13 years as you are well aware is because he refused to plea guilty and testify against Giddens. I would never tell anyone to testify against another. Giddens is the exception, when you screw your family or your close friends all bets are off.

  3. I never met Mr. Varner, however I do know Elroy Giddens as I am the one that taught him the Mortgage Business when he worked for me at First City Financial. I have known him since he was a police officer at the Anaheim Police Department. I met him through a friend that was a bailbondsman named Ray Gossett.

    The police department terminated his employment and I to this day do not know why. He went to work for a Orange County attorney a friend of mine named Hugh Swanson. Shortly thereafter we passed the California Bar.

    Within a year of practicing law he was engaged in a drug deal with a guy named Stanley Adams. Elroy was convicted, went to Federal Prison and was disbarred. During his arrest, he worked a deal with the FBI to testify against the other co-defendants on conditions they would help him get his license to practice law again.

    He left prison and became a truck driver. He and his wife came to me for help. I got him a car, house and I gave him a job at First City Financial writing mortgages In 1978.

    The exact same mortgage fraud he committed in this case consequently, he tried to do while working for me. We caught him and let him go.

    He used my ex-wife notary stamp without her knowledge on numerous documents. He made up fraudulent bank and accounting statements with nonexistent CPA’s. We were lucky because our losses were very low at the time

    He used to tell wild stories that he was a green beret in the Vietnam War. What a crock of crap! How the Anaheim Police department never discovered his lies are beyond me.

    I lost tract of this loser and he was able to convince the stupid California State Bar to reinstate him with the help of the FBI.

    I have had several friends who really got screwed by Giddens for large sums of money.

    I had heard that he was practicing law in Riverside County. About the time he was arrested on this charge, I did my own investigation and learned that the government wanted him about three to four years prior but had no evidence for a conviction.

    The government learned through their investigation that Giddens always carried a firearm in his boot. They wanted him so bad that they arrested him for an Ex-Felon in possession of a firearm and he received his second conviction and again was disbarred.

    Once he left prison for the second time a mutual friend gave him a job at his pawn shop where Giddens stole over a million dollars in gold that this man had saved for over 20 years.

    The pawn shop owner found Giddens briefcase with enough evidence for a conviction in this case Giddens was indicted and he was the named target. This means he was number one on the indictment and the person the government most wanted to convict.

    Knowing Giddens, he convinced the other defendants not to come clean with the Government. The first one that is willing to talk gets the best deal. At the last minute, Giddens made a deal and Varner went away for many years.

    I wrote a letter to Giddens sentencing judge requesting that he get more time. She sentenced him to a longer period of time as a result of my letter. This is what happens when you try and screw your friends.

    This whole mortgage fraud was 100% Giddens. The co-defendants were all suckered into this deal. They never knew they were getting screwed until they were arrested and faced justice.

  4. Doody says:

    Elroy attempted to practice law in Arizona. The State Bar Ethics committee learned of his past activities and denied him a license. He worked for an attorney as a “paralegal” yet he claimed to be an attorney. The guy who owned the pawn shop/bailbondsman is out of business, has numerous lawsuits filed against him, and he is avoiding service, and when he is actually served, he does not make an appearance. Therefore he has many default judgments against him.

  5. The Dude says:

    As embarrassing as this is, I served time with Elroy Giddens from around 2009 to 2012. He is quite a character. He had many unfortunate inmates convinced he could write briefs for them that would ensure their early release. He made a comfortable ( by Prison standards) monthly income with this scam.

    In addition he was audacious enough to try and run a real estate scam on fellow inmates while serving his short sentence. Which is interesting given I have read he was given essentially a 6 plus year sentence, yet only served a little over three? Hmmmm…..

    I do know he went on a writ once or twice, undoubtably rolling on a friend to shorten his own sentence, which it appears was successful.

    As to the Green Beret story, he would tell anyone who would listen that he was a Green Beret that served in the Nam. I asked many question of him concerning his service with Special Forces and while he was able to provide some legit answers about Army service in General, when asked about his DD 214, it was lost in the Fire at the National Archives, which, if you read about SF posers, is usually their default answer to where their proof is.

    In addition, he claims to have served in the mid to late sixties as an SF Operator. Well this is fine with the exception that that would put his exit from the Army in the late sixties. The problem with his story that his records were lost in the fire at the National archives is that the fire only affected the records of those who served from 1912-1960. So it is obvious he is lying. When pressed about details, his incendiary temper would kick in and the whole issue of his SF service would be side stepped. Interesting….

    He is without a doubt an example of someone with much potential that chose to squander it. He is a very intelligent man (who always felt he was the smartest guy in the room) but his thought process is without question criminal in nature. He is always looking for the next scam.

    Case in point, he befriended a young man who was serving time for a size able Ponzi scheme. They spent hours discussing how they could create their next scam as soon as they were released. As it turns out the young man was immediately re arrested upon his release from the Feds and charged with some 20 plus counts on additional crimes.

    I have no doubt Elroy was the mastermind of the HUD fraud and suckered his co conspirators into maintaining their silence in order for him to cut himself a sweet deal, which it appears is what happened.

    So, with several years of watching Elroy operate in Prison, I can say without hesitation, he is a career criminal with zero chance of rehabilitation, especially given his age and past track record.

    What a shame and what a waste of a life.

  6. Doody says:

    Is he dead yet?

  7. The Dude says:

    No, lives in California

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