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

February 4, 2010

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.


Ethics Violation Investigations – HUD Secretary Alphonso Jackson Resigns!

March 31, 2008

Ethics is a major branch of philosophy, encompassing right conduct and good life according to Wikipedia. In the case of someone stepping down from a significant position within the government, the “good life” portion may now be in question.

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Having grown weary of multiple ethics investigations, HUD Secretary Alphanso Jackson has been hinting at the possibility of resignation for over a year.

According to a report by CNN: The FBI has been investigating allegations that Jackson steered a federal contract to a golfing buddy based in South Carolina. Jackson has denied wrongdoing and White House officials have said for months that the president still has confidence in Jackson. No charges have been filed against him.

A long time friend of President Bush, before being confirmed head of HUD, Jackson ran Dallas’ housing authority and lead a Texas power company – American Electric Power – Texas in Austin.

Jackson stated speaking to reporters, “As the son of a lead smelter and nurse midwife, and the last of 12 children, never did I imagine I would serve America in such a way. I am truly grateful for the opportunity. We have helped families keep their homes, we have transformed public housing, we have reduced chronic homelessness, and we have preserved affordable housing and increased minority homeownership.”

THE ALLEGATIONS:

Senator Chris Dodd, D-Connecticut, earlier in the month demanded Jackson‘s resignation. Dodd said an inspector-general’s report recently stated that Jackson had advised staffers to “take political affiliation into account in awarding contacts,” and “serious allegations about his impropriety” are under investigation in three cases, although Dodd did not name them.

According to a CBS report: Jackson has been involved in a controversy over a Philadelphia redevelopment project, with accusations aired in a lawsuit that Jackson tried to retaliate against a city agency after it refused to award a contract to one of his friends. Jackson and other HUD officials have denied any wrongdoing.

The Washington Post states: The lawsuit alleges that Jackson, in a call to Philadelphia’s mayor in late 2006, demanded that the authority turn over the $2 million property to developer Kenny Gamble. Jackson‘s top assistant secretaries insisted in numerous letters and calls in 2007 that, if Philadelphia didn’t give the property to Gamble, the housing authority would be found in violation of a federal contract. The housing authority’s director, Carl R. Greene, repeatedly refused.

Fox News reports: The FBI has been examining the ties between Jackson and a friend who was paid $392,000 by Jackson’s department as a construction manager in New Orleans after Hurricane Katrina.

Again, according to Fox News: Last year, the inspector general at Jackson‘s department found what it called “some problematic instances” involving HUD contracts and grants, including Jackson‘s opposition to money for a contractor whose executives donated exclusively to Democratic candidates.

The Dallas Business Journal writes: According to an internal copy of the IG’s findings, obtained by the DBJ through a Freedom of Information Act request, top aides to Jackson testified that they and other senior staff members were advised to take political leanings into consideration when awarding discretionary contracts.

ETHICS:

A number of issues surround Jackson‘s work while at HUD. Often people find that power corrupts and that corruption can blur moral and ethics boundaries. It has been said that there is no such thing as business or political ethics, there are only ethical people. But “ethics” do exist. It is their application – or lack thereof – that is often called into question. What is being questioned is Jackson‘s application of ethical and moral principles as they apply to his job as HUD Secretary.

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Increasingly, with every choice being scrutinized, the application of choices in the ethical arena are under the microscope of conscience-focused public demand for fair and right. While politicians routinely make choices that benefit their constituents – it is generally deemed “unethical” to break the law or be so blatant about the political favors granted that one is accused of being “unethical.”

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 Jackson may have been supported by President Bush he did not avoid the consequences of how he handled his department. His resignation is not all related to personal and family matters – not when you resign under fire. What effect this has on any on-going criminal investigation is unclear at this time. One thing is for sure, you do reap what you sow.

If anyone reading has any background on Jackson – feel free to comment as I study the behaviors and backgrounds of those who are accused of unethical conduct.

Business Ethics Speaker – Chuck Gallagher – signing off…


Prison for Kenneth Elliott Former President of Metro Housing Partnership – Fort Worth, Texas

March 26, 2008

Kenneth Elliott admitted that he stole nearly $43,000 from Fort Worth, Texas Metro Housing Partnership funds some of which were used to purchase a Bayliner boat. For that he was sentenced to prison and restitution.

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Now – you know and he must have known that – every choice has a consequence. You do reap what you sow and Elliott’s sentence to federal prison plus restitution is that reaping taking place.

According to the US Attorney’s news release:

As president of Metro Housing Partnership, Elliott ran its day-to-day operations and was responsible for the disbursement of Department of Housing and Urban Development (HUD) funds that it received. Between April 1, 2002, and March 31, 2003, Metro Housing Partnership received more than $10,000 in federal grants from HUD.

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 Elliott avoided the consequences for a time – he did not avoid the consequences all together. Prison is no fun and will prove to be a dramatic change from his prior activities. You do reap what you sow.

If anyone reading has any background on Elliot 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…


20 Minutes and a Guilty Verdict! James Fantroy Former Dallas City Council Member Found Guilty

February 28, 2008

Some predicted a long trial and hung jury – WRONG! In just 20 minutes a federal jury in Dallas, Texas convicted James L. Fantroy, Sr., a former Dallas City Council Member of embezzlement.

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Seems that Fantroy, who also was a former member of the Board of Directors and Treasurer of Paul Quinn College community Development Corporation, embezzled funds from monies that were held in trust for Paul Quinn College.

In 1998, the U.S. Department of Housing and Urban Development (HUD) approved Paul Quinn College for a $250,000 Historical Black Colleges and Universities (HBCU) grant. The college hired Paul Quinn CDC to assist in administering the grant, which included the revitalization of the college’s surrounding area. Paul Quinn College entered into a real estate management agreement with Paul Quinn CDC establishing Paul Quinn CDC as the manager of the Highland Hills Shopping Center, a property owned by Paul Quinn College. It required Paul Quinn CDC to deposit all rental receipts it collected, less any sums properly deducted or otherwise provided for in the agreement, into a trust account for the benefit of Paul Quinn College.

From August 2000 through June 7, 2002, Paul Quinn College received eight disbursements totaling approximately $222,853 from HUD, pursuant to the HBCU grant. During the one year period beginning April 1, 2003, Paul Quinn College received funds from a second HBCU grant, totaling more than $10,000.

The government presented evidence at trial that from April 26, 2003, through July 30, 2003, James L. Fantroy, Sr., acting as an agent for Paul Quinn College, embezzled approximately $21,000 in monies held in trust for Paul Quinn College.

Fantroy faces up to 10 years in federal prison along with a $250,000 fine. He will be sentenced May 21st, 2008.

As a white collar crime and business ethics speaker, I know first hand the impact that choices have. And, as I state to most audiences, every choice has a consequence. The strange thing is – most who make choices like this somehow think that they will get by with the cover up. But you do reap what you sow and there is no hiding from the consequences of the choices you make.