Twenty Million Dollar Mortgage Fraud Scheme – Osmond Decoteau Indicted Faces Prison – Business Ethics Speaker Chuck Gallagher Comments…

October 27, 2008

Well over a year ago, I along with others were writing profusely about mortgage fraud and the severe lack of business ethics that seemed rampant in the industry. It almost seemed like “money for nothing” and the house was free. Now, as we approach the time for our general election, things could not be worse. There is no doubt that this will be a disaster for the GOP when the election results come in.

October 23, 2008, an indictment was handed down in Brooklyn federal court charging OSMOND DECOTEAU with wire fraud for masterminding a scheme to defraud mortgage lenders and banks of more than $20 million in connection with the sale of several properties located in Brooklyn and Florida.

According to the indictment: DECOTEAU recruited straw purchasers for properties located in Brooklyn and Florida, and ensured that their mortgage applications would be approved by lenders by fraudulently misrepresenting the purchasers’ financial condition. Subsequently, at the closings on these properties, DECOTEAU presented phony payoff letters which indicated that three companies he controlled were the loan servicers for the properties. The closing attorneys then issued payoff checks to the DECOTEAU-controlled entities, instead of the actual loan servicers for the holders of the pre-existing mortgages. To conceal the fraud, DECOTEAU caused monthly payments to be made on the underlying mortgages so that those mortgages would not be declared delinquent. As a result of the defendant’s scheme, between April 2005 and January 2007, multiple fraudulent closings occurred resulting in a fraud exceeding $20 million, and each of the properties is now encumbered by two first-lien mortgages.

Mortgage Fraud has been rampant. It will take years for the majority of the crimes to be uncovered. No doubt Decoteau, if found guilty, is just one of thousands who will prosecuted for taking advantage of a system without substantial controls.

“In May of this year we announced the formation of a task force comprised of federal, state, and local law-enforcement agents and investigators to address the burgeoning problem of mortgage fraud,” stated United States Attorney Campbell. “This prosecution is one example of the results of that cooperative initiative, which includes the investigation and prosecution of mortgage fraud that has harmed investors, lenders, and homeowners across the country.” FBI Assistant Director-in-Charge Mershon stated, “Combating mortgage fraud is a priority because mortgage lending and the housing market have a significant overall effect on the nation’s economy. The FBI is committed to investigating and prosecuting criminals who exploit vulnerabilities and devise new methods or schemes to defraud.”

As a business ethics and white collar crime speaker, I understand first hand the effects of the choices we make. I served time in federal prison for poor choices I made 25 years ago and the consequences still follow to this day. If it takes three components to create a fraud: (1) need; (2) opportunity and (3) rationalization…then Decoteau had plenty of opportunity considering the lax state of oversight when it came to mortgages in the past five to eight years.

If you know Decoteau…perhaps you’ll comment on his motivation.

Your comments are welcome…


Student Loan Fraud – Ethics Speaker Chuck Gallagher Comments – Choices and Consequences

September 29, 2008

Every choice has a consequence.  Sometimes the consequence follows a series of choices that lead a disasterous outcome.  At other times there is no series of small simple choices that keep building, rather, the choice is like diving into a pool off the high dive – once you’ve taken the plunge there is no turning back.

Melissa Renee Heggie, Marvin R. Heggie, Travis Hunter and Derrick King, all of North Carolina were indicted for their roles in a substantial student loan fraud scheme.

According to the US Attorney’s news release: From approximately June, 2007, through March, 2008, MELISSA, her brother, MARVIN, HUNTER, and KING, conspired to obtain approximately $1.2 million in student loans from JP Morgan Chase by submitting fraudulent documents. The HEGGIES recruited individuals to provide their social security card and identification. Once the individuals supplied MELISSA and MARVIN the appropriate documents, a student loan application would be submitted to Chase Bank via the internet using the information provided by the individuals. Chase Bank would approve the application and request further documents including a Chase Loan Application/Promissory Note, copies of the social security card, and identification. The Chase Loan Application/Promissary Note requested information including address, employment, college attending, and amount of loan requested. MELISSA and/or MARVIN would complete the paperwork with the individuals correct name and social security number, but falsify other information to include school attending, employment information, and street address. MELISSA and MARVIN would sign the individuals names verifying that the information on the application was true and then faxed the Loan Application/Promissory Note along with a copy of the social security card, driver’s license, a fraudulent billing statement from ECU, and fraudulent W2 forms, and other falsified documentation to JP Morgan Chase located in Indianapolis, Indiana.

Within days a check would be sent via United States Postal Service from JP Morgan Chase and arrive at one of three addresses provided on the application. Once MELISSA and MARVIN received the check, they would contact the individuals and tell them the check arrived. They would then meet at a check cashing facility to cash the check. The individuals would keep half the proceeds and give the other half to MELISSA and/or MARVIN. The checks ranged from $10,000.00 to $28,300.00.

There is little doubt that a white collar crime was committed and that it represents premediated fraud.  While and indictment represents an allegation of a crime and one is presumed innocent till proven guilty, rarely does the US Attorneys office gain an indictment without a conviction.  In fact the US Attorney issued a statement:

“This crime hits at the heart of an important program which provides student loans and financial aid money to deserving students. This prosecution is an effort to make sure this program is handled properly and funds are made available to those truly eligible.”

As a white collar crime speaker, I find it hard to understand the mentality of how this crime was pulled off.  Generally there are three components: (1) need; (2) opportunity and (3) rationalization.  Most white collar criminals start small and rationalization is at the core of the crime.  Otherwise honest people can commit crimes if they can rationalize their actions.  In the case of MELISSA RENEE HEGGIE, 29, of Grimesland, North Carolina; MARVIN R. HEGGIE, 27, of Raleigh, North Carolina; TRAVIS S. HUNTER, 28, of Grimesland, North Carolina; and DERRICK KING, 23, of Aurora, North Carolina, how one could rationalize that this was anything other than fraud is hard to comprehend.

Based on the charges, it would appear that there are four individuals who will spend time contemplating their crimes in the confines of prison.  Yet a wise man once told me that one can make a mistake, but no one is a mistake.  Perhaps these four can learn from their choices and help others not to make the same choices in the future.

Your comments are welcome.


Government Bail Out! $200 billion – now $500 Billion – Oops now $700 Billion – Is it too little too late?

September 20, 2008

The first paragraph from Yahoo news reads:

A half-trillion dollar bailout that the Bush administration and Congress are negotiating this weekend for faltering financial institutions could unload their bad debt on the government, and in turn the taxpayer.

So let me get this right … financial institutions made bad loans that are either delinquent or in default to people who should not have received them in the first place and now in order to keep the CREDIT markets afloat the government is going to do a massive bail out so that these same institutions can continue to loan.

Do not get me wrong I agree with the statement made by Treasury Secretary Paulson…”I am convinced that this bold approach will cost American families far less than the alternative — a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.  The financial security of all Americans … depends on our ability to restore our financial institutions to a sound footing.”

His statement is accurate, but the whole concept is that the economy is based on consumer spending and borrowing.  In fact, whether we wish to admit it or not, the entire US system is based on borrowing.  The government is the biggest borrower of all.  And unless somehow history does not repeat itself – eventually there is a day of reckoning when you are expected to pay back what you owe.  What happens when the government and/or the taxpayers can’t repay what the government has borrowed?

But enough of the big picture…what about now and the impact?  First, most of us have no idea how close we have come to a major depression.  In fact, while I am no doomsayer, rarely is reality what is stated by the government.  More times than not the outcome is far more costly than what is predicted.  So we very well may not have seen the end of this financial mess.

According to CNN: The plan: The federal government would buy up “hundreds of billions of dollars” of illiquid mortgage assets at a deep discount from banks. The Treasury Department is likely to run the program directly, unlike the savings and loan crisis of the 1990s that led to the creation of the Resolution Trust Company.

“The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy,” said Paulson.

Now what is clear about this plan is that financial institutions get to clean up their balance sheets so that they can continue to stay in business and LOAN. 

Question: Wonder what consequences, if any, the bank or financial institutions will incur?  Any penalties for making stupid loans to unqualified individuals in the first place?

Question: As inefficient as the government is how will they be any better at collecting on what is due than the financial institutions are?  Bet, they won’t be…rather either one or two things will happen: (1) they will do just what the banks would have done – FORECLOSE and sell the property off at deep discounts; or (2) somehow FORGIVE the debt and allow the property owners to own at less than what they borrowed in the first place.  Either way – people who have played by the rules PAY!

According to a CNN article: The plan will help banks shore up their balance sheets by removing hard-to-value assets. This would address the seemingly endless rounds of writedowns and capital raising that have been rocking the financial sector.

Without these bad loans weighing on their books, banks may be more willing to lend. Or at least that’s the goal.

The problem is that the bailout will not automatically make banks profitable, nor will it stop the slide in home values that is wreaking havoc on the economy.

Danger! Without the bad business on the books Banks would find it easier to raise capital and MAKE MORE LOANS.  The question still remains – who or what will make sure that banks don’t repeat (in the interest of big profit) what they did (not that long ago) to get into this mess?

Over the course of two days the price tag has gone from $200 billion to $500 billion and now I see on MSNBC that it is $700 billion.  Now, as Forrest Gump would say…”I’m not a smart man,” but I know that this government bail out will cost each American a lot of money.

WHAT ARE YOUR THOUGHTS?


White Collar Crime – So You Think You Invested Your Money? Mark Wayne Jaster Sentenced to Prison for Massive Fraud Scheme!

May 11, 2008

Some people have innate gifts. In the case of MARK WAYNE JASTER it must have been the power of persuasion, as this Texarkana, Texas man was successful at persuading investors to give him over $1.1 million dollars to invest.

PROBLEM: He invested none of it. Not one red cent! His skill to persuade was used in a misguided way and now he’s set to reap the rewards of his choices. Every choice has a consequence. In the case of MARK WAYNE JASTER, United States Attorney John L. Ratcliffe announced that 48-year-old Texarkana, Texas man, JASTER, has been sentenced to 78 months in federal prison for wire fraud.

MARK WAYNE JASTER was indicted on April 3, 2007 and charged with defrauding investors through a wire fraud scheme. He pleaded guilty to that charge on August 29, 2007 and was sentenced today to 78 months in federal prison by United States District Judge David Folsom. Jaster was also ordered to pay restitution in the amount of $1,134,623.30.

According to information presented in court, between 2002 and 2005, Jaster represented to investors that he was involved in the business of personal investment services. Jaster told those investors that he actively managed money through his InvestWise account at A.G. Edwards and Sons, Inc. in Texarkana, Texas. He claimed that through investing in various investments such as real estate, stocks, mutual funds, and pension funds, he achieved significant returns for his investors.

NOTE: There are many great investments out there, but, when someone tells you that they get great returns for their clients – “here, invest you money with me! Well, beware – there’s a fair chance it’s a scam. Use your common sense and check the investor out. It’s too easy these days to do that with the internet.

Jaster had some investors deposit money directly into his Mark Jaster DBA InvestWise account at Hibernia Bank. However, instead of using the money for investments, he would use it for his own personal expenses. Jaster had other investors open accounts at A.G. Edwards for the purpose of depositing funds for investments. After gaining signatory authority over these accounts, Jaster would then transfer the funds to his InvestWise account at A.G. Edwards to be used for his personal expenses.

During this time, Jaster would speak with the investors, advising them that their investments had grown significantly, and would send e-mails to the investors with false representations as to the status of their investments and legitimacy of the investments. None of the money Jaster received from investors was ever invested.

NOTE: If you’ve invested your money with an investment representative you should be able to get your account status on-line or at a minimum verify the investment status with someone other than the person who took your money to invest.

COMMENT: As a former white collar criminal (not something I am proud of) I did essentially the same thing as JESTER. I took clients money – used it for personal purposes (lifestyle) and ended up in exactly the same spot. Had either the clients done their “due diligence” by checking me and the investment I was representing out, or had they checked with someone other than me about the status of their investment, they would have found out the truth. In fact, the fraud was uncovered when ONE client sought information about his investment from someone other than me.

Every choice has a consequence. I am living proof that you do reap what you sow. And while JESTER is headed for prison, there is hope that he might learn from this experience. Today, as a speaker, I address college kids in business schools for free – it’s my way of warning them about the law of choices and consequences. This service was recently reported on in Business Week. See the article here.

For information on my presentations to colleges and universities or business associations, contact me at www.chuckgallagher.com.


Bribery and Extortion in Dallas, TX – Allen J. McGill Pleads Guilty! The Cards Seem To Be Stacked Against Don Hill Former Dallas City Councilman!

April 15, 2008

In a widely publicized case of extortion, corruption and bribery involving public officials, the first piece of the case fell into place today when Allen J. McGill, age 64, plead guilty to conspiracy to commit extortion. He could face up to 5 years in prison.

McGill was the former president and vice chairman of the Black State Employees Association of Texas (BSEAT) and the BSEAT Community Development Corporation (BSEAT CDC). McGill admitted that he knowingly and willfully combined, conspired, confederated, and agreed with Donald W. Hill (an attorney and elected official who represented District 5 on the Dallas City Council), Darren L. Reagan (chairman and chief executive officer of BSEAT) and others to wrongfully obtain and attempt to wrongfully obtain, property from another person with that person’s consent, induced by wrongful use and threat of use of economic harm and under the color of official right.

Don Hill

Don Hill Ex-Mayor Pro Tem

According to the US Attorney’s news release:

In August 2004, developers James R. “Bill” Fisher and Brian Potashnik sought local and state approval to construct multifamily affordable housing developments in South Dallas using federal tax credits and tax-exempt bonds. Reagan and McGill, seeing an opportunity to further their own financial interests, agreed to use the BSEAT entities to profit personally from the developments. Reagan met with Hill, who agreed to direct affordable housing developers to BSEAT. The developer would then have to get BSEAT’s approval, which was contingent on the developer agreeing to terms financially beneficial to Reagan and McGill, and through them, ultimately beneficial to Hill himself, before Hill would support the project at the Dallas City Council.

Reagan and McGill continued to make it clear to Fisher that Fisher had to work with BSEAT to get Hill’s support of Fisher’s affordable housing developments that were pending Dallas City Council approval and Fisher indicated he was willing to work with BSEAT. On September 21, 2004, McGill sent an email to Fisher in which he stated: “I am particularly encouraged to hear your reaction to my proposal to broaden your company’s involvement with Black State Employees Association of Texas and its recommended business partners.” McGill admitted that the “recommended business partners” to which he referred were subcontractors who would kick back a portion of their fees to Reagan and McGill.

Other key defendants include state Rep. Terri Hodge, former Mayor Pro Tem Donald W. Hill and real-estate developer Brian L. Potashnik.

According to a CBS News 11 report, “Southern Methodist University law professor Fred Moss, a former federal prosecutor, said the guilty plea sends a message to the other defendants. “It’s the old strategy of the prosecutors telling the defendants the train is leaving the station, and they better get on or else they’ll be left behind,” said Moss.”

Every choice has a consequence. McGill’s choices will likely result in a prison sentence unless he has worked a deal for a substantial downward departure – which I doubt. Having spent time in federal prison (not something I am proud of), many who cooperate with the government find that an early guilty plea and cooperation will substantially reduce their time behind bars. Today, I speak nationwide on (1) fraud in business, (2) how to avoid fraud in your company and (3) how business ethics can improve your financial performance.

One thing is for sure – You do reap what you sow! McGill and others will come to learn that soon. Since he’s scheduled to be sentenced on June 27th, 2008 we’ll soon get an understanding of what the others face.

If you know Allen McGill and have any comments feel free to jump in!


Business Ethics and Embezzlement – Heather Lott Pleads Guilty – What Went Wrong?

April 7, 2008

Monday…Monday. While the song from the Mama’s and the Papa’s was good – it wasn’t so good for Heather Lott, the former bookkeeper for Local 19 of the International Brotherhood of Teamsters. Lott plead guilty to embezzling more than $140,000 in union funds.

As the bookkeeper of Local 19 from January 2003 through January 2006, Lott’s duties including paying bills and maintaining the financial records. According to the US Attorney’s news release, the treasurer of Local 19 first discovered improprieties in the union’s accounting during his 2005 year-end audit. He noticed more than 12 database entries during 2005 were designated as rent payments for the union hall even though the union only paid rent on a monthly basis. The lessor of the union hall stated he had received only 12 payments from the union that year. The treasurer was unable to find all the cancelled checks for the supposed rent payments in the union’s financial records and subsequently obtained the cancelled checks from the bank supposedly for rent that were missing from the union’s files. All these missing checks listed Lott as the payee and endorser.

Now how dumb is that? Lott steals money from her employer and then gives the auditor – as proof of here excuse for the missing money – checks made out to her?

After this discovery, the Teamster’s International

Union sent two auditors to examine the Local’s records who discovered 91 cancelled checks missing from the Local’s records. According to the database entries, all of these 91 checks were paid to vendors the Local used. However, after the cancelled checks were obtained from the bank, all 91 checks, totaling $135,974.53, listed Lott as the payee and endorser. The subsequent Department of Labor investigation found five additional checks made out to Lott for $4,977.72, bringing the total amount embezzled to $140,952.25. Bank records show the vast majority of the 96 checks were deposited to Lott’s personal account and that she spent the money on personal items.

When there is a lapse of business ethics and integrity – often potential white collar crime follows. In this case Heather Lott was a dumb criminal. Not only did she steal money, but she was lame in the crime as she only disguised the defalcation through accounting entries. All the checks that were written and cashed created the perfect paper trail for the auditors to follow.

Every choice has a consequence. Lott‘s choices will likely result in a prison sentence, restitution and potentially an IRS claim for tax fraud as I doubt that she paid tax on the embezzled funds. Yes! Tax is due on money from all sources except those that are exempt and stolen money is taxable. I should know – I spent time in federal prison for not paying tax on stolen money. By the way, I am not proud of that fact, but today, I speak nationwide on (1) fraud in business, (2) how to avoid fraud in your company and (3) how business ethics can improve your financial performance.

One thing is for sure – You do reap what you sow! Heather Lott will come to learn that soon as she is scheduled to be sentenced on July 7, 2008.

If you know Heather Lott and have any comments on her and/or the crime committed here – feel free to comment!


Hayim Regensberg Investment Advisor Indicted – $11 Million Ponzi Scheme!

March 15, 2008

They always collapse. Always! Some have lasted for over ten years – others not nearly that long, but in the end they collapse and the perpetrator pays a significant consequence. And while an indictment does not mean guilt, rarely in my experience has the government brought an indictment that they didn’t prove.

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.

fraud.jpg

According to the US Attorney’s news release: HAYMIN REGENSBERG engaged in a scheme to defraud multiple investors by falsely promising to invest their money in one of two ways. One method involved his claim that he had access to IPO issuances on foreign stock exchanges before the general public, and that he would invest money in international IPO stock that would be sold in the public market at the earliest possible moment thereafter, thereby obtaining for his investors quick returns of between approximately 5 percent and 15 percent within weeks of the IPO, with little or no risk to the invested capital. REGENSBERG told investors that he had used the same international IPO investment strategy successfully in the past, and had a consistent and highly positive investment track record in such investments. In fact, REGENSBERG did not invest the investor funds as represented.

This is classic Ponzi at work. As a white collar crime speaker, I address groups nationwide on issues related to fraud, theft and white collar crime. The first thing tell any group is – if it sounds to good to be true – it is likely a fraud. Most people understand that and agree, but the seduction of fast money and winning seems more powerful that common sense. Likewise, those who offer such fabulous returns are often trusted advisers – so the trust factor is already built into the equasion – thus making the ploy easier to achieve.

REGENSBERG also claimed to employ a second investment strategy in which invested funds would be “loaned” to trading
firms, which would use those funds merely as collateral relating to leveraged investments made by those trading firms (the “Lending Product”). REGENSBERG also represented that these funds would not be further invested by the trading firms, but rather would remain in the trading firms’ accounts. REGENSBERG promised each Lending Product investor a high, fixed annual rate of return of up to 18 percent per year, and told investors that funds invested in the Lending Product would be subject only to the low risk that a trading firm might collapse. In fact, REGENSBERG made no such investments.

Again, a classic Ponzi scheme at work. Promises of low risk and outstanding return by someone trusted is a tell tale sign of “something” not right with the picture. As this indictment is explored, the question is – how did the Ponzi scheme collapse?

Apparently, REGENSBERG invested large portions of the funds obtained in highly speculative and risky trading, including options trading. I suspect (only my opinion) that REGENSBERG felt that he could – through speculation – beat the market and hence have funds to repay the original investors. Rarely does that happen and if it did – it would only fuel the fire that “he was the smartest man in the room” and hence perpetuate the continuation of the scheme.

True to a classic Ponzi – REGENSBERG also sent investors money he claimed represented the proceeds of their investments. REGENSBERG paid out to earlier investors money he took in from new investors, thereby perpetrating a “Ponzi” scheme. REGENSBERG also diverted significant amounts of investor funds to himself and his relatives.

When certain investors confronted REGENSBERG about the fact that they had stopped receiving regular payment of promised investment returns, and asked him whether their invested proceeds were safe, REGENSBERG provided the investors with a forged bank document purporting to show he still maintained approximately $9 million in a bank account he controlled, when in fact that account contained only approximately $9,000 at that time.

Every choice has a consequence! While I am not proud of my next statement – I, too, was a white collar criminal convicted of a similar scheme and served time in federal prison as appropriate punishment – the fact remains that I understand the crime and concept behind how it is committed. Today, my role as a national speaker is to help businesses and individuals understand the nature of white collar crime and how to avoid it – if possible.

Just like the law of gravity that we all live with daily without thinking – so is the law – YOU REAP WHAT YOU SOW. How true.

Your comments are welcome.