Reginald Davis Sentenced to Prison for Mortgage Fraud…there’s a lesson here!

January 5, 2010

If you want to buy a home or investment real estate – YOU BETTER BE HONEST.

As we approached the height of the real estate bubble it seems that Reginald Davis, formerly of Dallas, TX, conspired with Michaiah Pruitt, a real estate investor from Dallas, to make false statements in mortgage applications in order to obtain mortgage loans for Davis to purchase two residential properties from Pruitt.  He admitted that he overstated his income, had funds in a bank account and intended to occupy the houses as a primary residence.

So, now some three years later, it seems that Reginald Davis is on the receiving end of his consequences.  That little scheme earned him: (1) a felony conviction; (2) six months in federal prison; (3) 6 months of home confinement and (4) restitution of $176,000.

Two other individuals who pled guilty are awaiting sentencing:  Jeanelle Richardson and Pierre Sowell.

LESSON:  If you’re applying for a loan it is best to be honest, cause EVERY CHOICE HAS A CONSEQUENCE and the consequence of faking a mortgage application to buy real estate is not worth time in federal prison.

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R. Allen Stanford’s Court Date 2011 – Stanford Financial Group fraud case takes Years – Madoff takes Months?

December 31, 2009

According to the Dallas Business Journal – U.S. District Judge David Hittner has decreed that Stanford’s trial on charges that he led a $7 billion fraud scheme would begin in January 2011.

The Securities and Exchange Commission, on February 17, 2009, charged Robert Allen Stanford and three of his companies for orchestrating a fraudulent, multi-billion dollar investment scheme centering on an $8 billion CD program.

“As we allege in our complaint, Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors.”

Rose Romero, Regional Director of the SEC’s Fort Worth Regional Office, added, “We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world.”

Stanford’s lawyer, Kent Schaffer, had asked Judge Hittner not to schedule the trial until the summer of 2011. If defense lawyers must prepare the case without funding from Stanford’s insurance policies, Schaffer reportedly said it could take as long as two and a half years to get ready for trial.  Meanwhile, according to documents filed with the Texas Workforce Commission confirmed earlier this year Stanford closed its facilities and effectively had to dismiss 1,022 employees across the United States. About 297 workers in Houston, the headquarters of Stanford Financial Group, lost their jobs.

Bernie Madoff knew that he was toast in December of ’08 when he admitted that the financial empire that he build was built based on fraud.  While he did wrong, at least he knew when to admit his guilt.  He saved the taxpayers millions by avoiding a long protracted trial.  In less than a year Madoff knew his fate – the rest of his life in prison.

Stanford – well he is still attempting to prove his innocence.  And, while in this country you are innocent until proven guilty, the bulk of the evidence suggests that Sir Allen Stanford will likely face a similar fate to that of Bernie.  I suspect that Stanford will, too, face the rest of his life in prison.  As a business ethics speaker I have to say, I at least respect that Madoff accepted his fate instead of making the process a circus.

DO YOU THINK THAT STANFORD IS RIGHT IN TRYING TO PROVE HIS INNOCENCE OR SHOULD HE PLEAD GUILTY AND MOVE ON?  Your comments are welcome.


Robert Allen Stanford – Stanford International Bank and Stanford Capital Management – Fraud In the News! What Motivates Fraud?

February 22, 2009

It seems that the flood gates are open with no hope of shutting – at least any time soon – with investigations and indictments of fraud!  Madoff, Dryer, Grigg and now Stanford.  Every where you turn there is another fraud or investment scam being reported.  I’ve seen a lot over the years as a business ethics and fraud prevention speaker, but this is a profound season for fraud discovery.  So the question – what motivates fraud?  robert-allen-stanford

To address a question like that you need to look at the scope and magitude of the frauds being reported.  And, make no mistake in this economic climate this is the tip of the iceberg.  As I write this, no doubt, there are frauds taking place that will be discovered in years to come.  Not a great comfort.  And, in this environment, the time is ripe for people to be scammed or victimized.

Before, however, look at the motivation, let’s examine what Stanford is being accused of.  According to the Dallas Business Journal:

A Houston-based broker-dealer and investment advisory firm with an office in Dallas has been charged in an $8 billion investment scheme that centers around a CD program and involves false promises to investors.

The Securities and Exchange Commission out of its Fort Worth Regional office alleges in a lawsuit filed in Dallas that Robert Allen Stanford through three of his companies — Antiguan-based Stanford International Bank, Houston-based Stanford Group Co. and Stanford Capital Management — were involved in orchestrating a fraudulent investor scenario where the parties made false promises to investors and fabricated return data on investments, the SEC stated.

“As we allege in our complaint, Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors,” said Linda Chatman Thomsen, director of the SEC’s Division of Enforcement. “We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors.”

Rose Romero, regional director of the SEC’s Fort Worth office, called the scheme “a fraud of shocking magnitude that has spread its tentacles throughout the world.”

This was originally reported on February 17, 2009.  Since that time there has been a massive ripple effect related to Stanford’s SEC investigation. Investors have found that their assets have been frozen as Stanford’s assets were frozen to protect investors.  This fraud expands far beyond the boundaries of the US.

The Jamaica Observer states: His is a household name in the tiny Eastern Caribbean island of Antigua & Barbuda.

Likewise, the New York Times reports: Having seized control of Robert Allen Stanford’s two banks in recent days, Antiguan government officials are now pledging to work closely with American regulators to investigate their banking system, long suspected by federal officials of being a center for laundering money from around the region.

Now…as the Stanford saga unfolds so does the mystery.  Keep in mind, fraud – to be successful – has to be based on illusion.  And, as we have seen, the grander the illusion the more plausible the fraud – Bernie Madoff – master illusionist.  So in Stanford’s case the illusion is mystified by a story of an “undisclosed island.”

Again, the New York Times reported on February 20, 2009 – In an October 2008 article, Mr. Stanford told Forbes that he was planning to build an elite resort on what the magazine described as an “undisclosed island in the Caribbean.” At the time, Mr. Stanford said that he was working with 17 architectural and engineering firms to build 30 mansions for a development to be called the Islands Club.

Scheduled to open in 2011, it would have featured the largest private aviation complex in the world, Forbes said, with enough room to park 100 private jets as well as a jumbo marina with enough dock space for 30 massive yachts. The super-exclusive resort would require members to shell out a $50 million deposit, which would be refunded if they left the development. That was on top of the $15 million annual membership fee.

The foundation of a scam is based on three components:  Promises – something that people want and most can’t get; Illusion – the grand scheme that allows people to believe in something unseen as truth; and Trust – the belief that all is right, that somehow the government is overseeing the illusion and that if others do it – well then so should I.

BUT WHAT MOTIVATES A FRAUD IN THE FIRST PLACE?

That’s a good question and one that is not easy to answer.  However, one thing is true – a fraud usually has three distinct components: (1) Need; (2) Opportunity; and (3) Rationalization.  While I am not qualified to speak at this time as to each of these critical components, I can safely say that his NEED was driven by emotion (likely first) and (direct need perhaps second).

Note the following reported by chron.com:  With a net worth north of $2 billion, he owns glitzy homes in and around Miami, the Virgin Islands and Antigua, and in them he has entertained powerful American politicians from both sides of the aisle.

He has an estranged wife, a girlfriend, former girlfriends and at least six children by four women. The monthly tab to support them all runs upward of $200,000, according to court records.

He loves to flash cash and to flaunt the toys that immense wealth can bring, be it yachts, private jets and helicopters, his own professional cricket team or a string of top-shelf pro golfers whom he pays to wear his logo.

An outstanding article appeared in the Wall Street Journal – a link to that article is here.

The flamboyant life style required money to fund the illusion, but more than that the emotional need to be larger than life is likely the key trigger to what and why this whole fraud began.

STANFORD’S JOURNEY CONTINUES:

The story will no doubt unravel.  So consider the following:

  1. If you were an investor who was defrauded, consider making contact with me as I am doing research into how the fraud was carried out.  Your comments might help others avoid your plight.
  2. What do you think should be Stanford’s consequence for the massive fraud he’s accused of?
  3. If you did invest – did it cross your mind that the returns (far better than what the market provided) might be – well – shady?

AS ALWAYS COMMENTS ARE WELCOME!


Prostate Cancer Solutions – A New Blog is Formed

November 1, 2008

Some of my collegues have said that I’m crazy – as I’m expending energy to focus on an area that is not a part of my daily livelyhood.  I am a business ethics and sales motivational speaker and trainer.  I am also a prostate cancer survivor!

Because of my speaking and writing, I have elected to be an open book.  That choice has carried into my work with prostate cancer as well.  Because of that and the strong number of people who have contacted me asking questions and seeking help – I have chosen to write a book about not only my experience with prostate cancer but the experiences of literally hundreds of men.

When I was diagnosed I became frustrated at the volume of information, but the lack of credible data from a survivors perspective.  As a result serveral things are happening that may benefit the 280,000 men who this year will be diagnosed with prostate cancer.

One…the book is well underway.  I am still conducting interviews from men who have had treatment for prostate cancer in various forms.  GUYS…I know that it may sound strange, but I need your help.  Your comments (taken confidentially) could save someone else’s life.  So, PLEASE, contact me so I can get your story.  The time you spend with me in this short interview may be all it takes to help another or save a life.

Advance copies of the book can be obtained by contacting me at chuck@chuckgallagher.com

The other major issue is a new blog has been formed devoted strickly to the issues of PROSTATE CANCER.  The blog can be found here and is called:  http://prostatecancersolutions.wordpress.com.

Feel free to visit this blog and take the time to comment.  Every comment has value and together we can create a safe place for men to focus their efforts to beat this dreaded disease.  Your comments and help are greatly appreciated.


Use Ethical Sense – Save Your Non-Profit or Association’s Assets from Theft or Neglect

November 1, 2008

As a business ethics speaker, I am witnessing what appears to be an increase in the number of frauds – mostly financial – that seems to be creeping into most organizations – whether for profit or not for profit.  This is not unexpected as hard economic times create desperate actions.  One thing for sure, whether you are a non-profit organization, church or association, you’re assets are just a vulnerable as any other organizations.  The only difference I see is that in touch times it is often more difficult to grow your assets since you rely on contributions (in large part).

I read an article written for the Chicago Tribune that was outstanding.  The author was

Be professional. Board meetings are not social events.  Attorney Lara Anderson stated, “You are the board member of a corporation, and there are formalities you have to go through and laws you have to follow.”

Board members have a legal responsibility, called fiduciary duty, to act in good faith, make informed decisions and avoid conflicts of interest, she said.

Make a money plan. Attorney Gabriella Comstock advises associations to adopt a formal financial policy that tells how money will be handled and invested. You might include such requirements as a yearly audit, two signatures on every check, and that reserve money over a certain amount will be put into a certificate of deposit.

Such a policy “leaves a paper trail that shows you were trying to act responsibly,” she said. “It gives insight as to your thought process and shows you didn’t act on a whim.”

Be involved. Every board member needs to know how the money flows, not just to avoid embezzlement but to ensure sound financial decisions, said Comstock.

Audit the books. Many experts advise yearly financial audits, and some declarations require them. It’s also good to conduct an audit after developer turnover or changing management companies.

Get bids. The law doesn’t say you have to bid your contracts for goods and services, but you’ll make better decisions if you do. Study the bids—the comparisons will be enlightening, said Anderson.

“If one bid is way up and another is way down, find out why,” she said. “Maybe one is a licensed contractor and the other is not. Maybe one has been in business for 30 years and another is just starting out and running a business out of his garage.”

Know your manager. By law, managers cannot have prior convictions for forgery, embezzlement or similar offenses. They can’t co-mingle your money with that of other associations they manage. But it’s up to you to check. If you’re hiring a manager, interview several, follow up with their references, and ask what financial controls they have in place, said Anderson.

Spread the responsibility. Accounting tasks should be shared between management and the board, said Majewski.

“Make sure whoever is issuing checks and reconciling bank statements are different people,” he said. “Whoever is receiving cash and posting receivables should be two different people.”

Learn to recognize red flags. Majewski offered several: serially numbered documents that are missing, lots of cash transactions, photocopies rather than originals, second-party endorsed checks, duplicate payments to vendors, vaguely worded invoices and lavish personal spending by someone responsible for your money.

“Ask questions,” he said. “Don’t stop until you get an answer that satisfies you.”

The advice offered here is priceless.  The potential for loss can be staggering and devastating for a small organization.  As an example an acquaintance of my disclosed to me that someone he knew had taken most all the funds from a youth soccer league and spent it on lifestyle maintenance.  As he asked the question I knew that he wanted to know more than just to satisfy his curiousity.  Turns out the theif was his son-in-law.  Scared, he didn’t know what to do.

No doubt the scenario I just described is going on in hundreds, if not thousands, of cases around the country.  I state the above to serve as a warning…take precautions and know that lack of trust is the first step to eliminating opportunity and opportunity is one of the foundations for fraud.

You can stop fraud by removing the fuel that feeds it.

By the way, if your organizations assets have been misappropriated, feel free to comment on how the misappropriation took place.  Your comment may save others.  You can help.


Business Ethics – Fraud Awareness: There Is Definitely A Link!

October 17, 2008

My how times change.  Just a few short years ago the economy could do no wrong.  People commented about the large movement in the housing market “caused” by the Baby Boomers.  Baby Boomers were buying second homes, downsizing, and making room for the next wave of new home buyers – or so we thought.  But hind sight is 20/20.

Perhaps less of that was true that what we thought.  Looking back there were many artificial factors in play that were, in my opinion, a clear violation of what most people would say are sound business ethics.  As a business ethics speaker, I know as I consult with companies frequently who want to know how to get out of some of the messes that have been created.

No where is this more evident than in the mortgage and banking industries.  And let me be clear – WHERE THERE IS A BREACH OF BUSINESS ETHICS – THERE IS FRAUD.  When companies turn their back on maintaining a strong ethical foundation for themselves and their employees, they run the very real risk of exposing themselves to fraud.  And, no one that I know of wants to be on the back end of a very messy fraud investigation.

As an example, the Dallas Independent School District has been dragged through the mud with all that has taken place – FBI investigations for fraud and all.  Now the DISD is not a bad organization, in fact, it does good work and should be proud of its place in the community.  But, with lax controls and an environment that did not fully promote ethical behavior, it was clear that when temptation was presented the obvious outcome would be fraud.

Now the question is – what does the Dallas Independent School District have to do with mortgages and banking?  NOTHING!  Rather, it serves only as an easy example of how an otherwise good organization can be featured in a negative light – and that is because of the choices they made.

The larger question is – with the economy where it is today, which banking institutions will survive and which will implode under the weight of the poor choices made during what appeared to be more “healthy” times?  There wil be bank failures as this “recession” and, yes I called it a recession picks up steam.  We are no where close to the end with more unpleasant news to come.

WHAT NOW?

Frankly, that is the question that the business community should be asking!  It has been said over and over, only the strong will survive.

When there is an economic downturn there will be FRAUD.  Make no mistake that is a given.  There are three elements involved in most frauds: (1) need; (2) opportunity and (3) rationalization.  When the economy goes south…there is NEED!  That is the first step and if ever there has been a time when NEED is growing – it is NOW!

Here where the ethics equation comes into play.  NEED alone does not create fraud – it is just one component.  If the opportunity is eliminated then the fraud cannot happen.  That’s where a commitment to ethics and fraud awareness come into play.  As a business ethics speaker and fraud prevention consultant, I (and certainly I am not the only one) help businesses understand how to create a culture that supports “doing the right and ethical thing” – I call it MOTIVATIONAL ETHICS; and, looks carefully at methods to eliminate opportunity.  If the business promotes ethics and reduces opportunity there will a strong chance that it will survive and become stronger – even during poor economic times.

MORTGAGE FRAUD TWISTS:

CNN did a great article on several new twists in the ever changing mortgage fraud arean.  Bank and financial instititutions be aware.  The mortgage industry is in a state of disarray and as such there is definitly a NEED (one of the components of fraud).

Here are the three that CNN reported:

(1) under-appraising property values:

These schemes involve short sales, which come up when a struggling homeowner is “underwater,” or owes more on his mortgage than the home is worth.

When done legitimately, the owner sells the home for the lower market value, and the lender agrees to accept just that amount and forgive the difference.

When illegitimate, fraudsters fake very low appraisals for the homes and use those appraisals to justify low short-sale prices – well below true market values.

If busy bankers don’t check the appraisal closely, they may agree to sales of homes that should be worth $200,000, for $150,000 or even less.

The buyers – in cahoots with the owner – then flip them for a big profit.

Over the past four months I have seen, through my consulting work, a tremendous increase in “short-sale” interest – and that is something that many financial institutions are ill prepared to deal with.  It is new to them and an area ripe for fraud.

(2)  Liar Loans:

“Liar loans are now fully documented – but with really good fraudulent documents,” according to the CNN article.

In one case investigated by Interthinx, a New York man buying an investment property in Georgia provided documents that showed double his actual salary.

Advanced information technology and photocopying equipment have gotten so accurate that very convincing papers, including income statements, savings accounts and tax returns can be produced on demand.

Scams that misrepresent income or employment are still the most common type of fraud.

(3)  Buy and bail:

Example: You’re underwater on your mortgage and want a new, cheaper home down the block. You could just bail on the existing home, but no lender would give you a mortgage for the new one.  So you tell the bank you plan to rent out the current home – even though you have no intention of doing so.

“This is a very difficult scam to pin down,” said Jennifer Butts, a spokeswoman for MARI, because the rental agreements that borrowers proffer may not be scrutinized by lenders.

The Federal Home Administration announced in late September that it hoped to head off many buy-and-bails by no longer insuring mortgages if the homeowners had existing loans – unless they could show enough income to pay off both loans simultaneously.

Now, just because a home is rented does not mean a scam is taking place.  For example, my wife and I just sold a home in Dallas, TX and moved to Raleigh.  It is a “buyers” market there, so rather than make a hasty decision, we elected to rent a home.  Turns out that the landlord bought another home and was unable to easily sell the one we rented.  This is an example of a legitimate transaction.  However, the action by the FHA may add undue stress on an otherwise tight market – just in an effort to eliminate opportunity (the second part of the fraud equation).

WHERE FROM HERE?

(1)  Honestly evaluate you and/or your company’s commitment to ethics.  Everyone says they beleive but the real question is – what have you done to set the right tone?  By that question, I don’t mean what have you done to comply with the law, but is there a tone of ethics in the company?

(2)  Have you or the company done anything within the past year to raise ethics awareness or fraud awareness?  Seminars, workshops, team meetings, on-line awareness programs – to name a few – are visible symbols of a company’s commitment to a foundation of solid business ethics.

(3)  Has an evaluation been done to consider what opportunities for fraud may exist and more importantly – how to eliminate or reduce them?

Now is the time for businesses who want to survive to take action.  Failure could be catastrophic as the “perfect storm” is rising for business fraud and ethics failures.  One thing is true…YOU DON’T WANT TO BE IN THE HEADLINES ON CNN TOMORROW FOR AN ETHICS FAILURE!


Mortgage FRAUD – 12 Indicted in Houston, TX – FBI Hard At Work…

October 12, 2008

“Those who seek to take advantage of the American Dream of home ownership and those who prey upon others in these dire economic times will most certainly be held accountable,” United States Attorney Don DeGabrielle stated in his news release announcing the indictments.

Anthony Wayne Hawkins, 48, Brandon Alonzo Crenshaw, 27, Nehemiah Jamal Douglas, 28, Babette Jammer, 47, and David Vasser, 59, were indicted for their alleged involvement in a mail and wire fraud conspiracy which resulted in the defendants and their co-conspirators fraudulently obtaining more than $17 million in loan proceeds. The defendants and their co-conspirators are accused of recruiting individuals to purchase residential properties with the intent to deceive mortgage lenders concerning the borrower’s ability and incentive to repay the loans. Falsified documents were prepared and provided to the mortgage lenders, according to the indictment, to support loan applications.

No wonder we are facing the most significant financial crisis our nation (perhaps the world) has seen since the great depression. Daily announcement are being made about the indictment or conviction related to similar schemes.

“The FBI remains committed to continuing its efforts to vigorously address mortgage fraud and ensure that the strength and integrity of the nation’s financial sector are sustained,” Bland said. “Moreover, it is imperative that those who engage in this pernicious crime, and thereby undermine the economic vitality of our communities, are held fully accountable for their actions.”

“Mortgage fraud, like all financial crimes, threatens the overall health of our financial institutions and erodes the integrity of our tax system,” Clarke said. “Additionally, these types of crimes drive buyers into foreclosure, leave lenders burdened with bad loans and neighborhoods with abandoned and deteriorating properties. IRS Criminal Investigation is committed to working with its law enforcement partners to pursue individuals who commit these types of crimes.”

Question:

Other than premeditated blatant theft, how could those indicted become associated with such an outright fraud? More importantly, did any of them think that there was a chance of getting by with such a fraud. As a white collar crime and business ethics speaker, I understand that every choice has a consequence. It’s easy to see how someone could make a simple mistake that compounds and becomes a fraud with terrible consequences, but this seems noting more than blatant theft.

Perhaps I am missing something here. If you know these people and have any insight your comments are welcome.