As you look over the reported facts of this case, it’s sad to see that so many could conspire to defraud. Do I blame the perpetrators – Yes! But, when you look more closely we have to evaluate what was happening at the time and how the environment created the opportunity to join together to create such a widespread fraud.
As a business ethics and fraud prevention speaker, I see, all to often, that when three things come together: (1) Need; (2) Opportunity and (3) Rationalization – it creates the PERFECT STORM for fraud. To be clear, just because those three things are present does not mean that Fraud will occur, rather it means that the conditions are right for the ethical person to make the unethical choice that can lead to illegal activities and fraud.
Read the US Attorney’s news release below for more details…
DEPARTMENT OF JUSTICE
United States Attorney Anne M. Tompkins
Western District of North Carolina
FOR IMMEDIATE RELEASE
FRIDAY, MAY 6, 2011
CONTACT: Lia Bantavani
LOAN OFFICER SENTENCED TO 19 YEARS IN PRISON CHARLOTTE, NC—Today, the United States Attorney’s Office for the Western District of North Carolina announced that Michael Pahutski, 48, of Gastonia, was sentenced to 19 years imprisonment to be followed by five years of supervised release. Pahutski was also ordered to perform 200 hours of community service and pay restitution of approximately $3.5 million. The sentence is the latest step in an ongoing investigation of mortgage fraud schemes carried out around the Charlotte area, which led to the charging of eight individuals with mail, wire and bank fraud conspiracy, money laundering conspiracy, and related charges in March 2008. The investigation also resulted in the trial of closing attorney and co-defendant Victoria Sprouse in March 2009. Pahutski pled guilty prior to trial, without the benefit of a plea agreement, to all twenty-one counts in the indictment then pending against him.
Joining the U.S. Attorney’s Office in making today’s announcement are Jeannine Hammett, Special Agent in Charge of IRS-Criminal Investigation Division; Chris Briese, Special Agent in Charge of the Federal Bureau of Investigation, Charlotte Division; Inspector In Charge of the U.S. Postal Inspection Service, Keith Fixel; and Wayne Goodwin, Commissioner, North Carolina Department of Insurance.
A federal indictment charging Michael Pahutski with mortgage-fraud- related offenses was originally filed in August 2007, followed by a superseding indictment adding charges and five other defendants in March 2008. To date, all six of those defendants have been either convicted at trial or have entered pleas of guilty. The charges represent the results of a local investigation which stemmed from the detection of an original mortgage fraud scheme in September 2002, and focused on a group operating in and around the Charlotte area. The indictment alleged, and the evidence presented at the sentencing hearing and elsewhere, showed that all the defendants participated in a series of mortgage fraud schemes involving more than $20 million in mortgage loans and hundreds of houses in Charlotte-area neighborhoods. The defendants included Pahutski who served as a loan officer, as well as a closing attorney, a real estate appraiser, another mortgage broker, and two realtors. The indictment also identified two other attorneys, three home builders (including one national homebuilder), and several real estate investors as co-conspirators in these schemes. One of the banks victimized by the schemes closed its doors in mid-2007 after 103 years of business in large part due to the scheme.
The indictment alleged that Pahutski participated in a “flip” mortgage fraud scheme where houses were purchased through fraudulent mortgage applications and use of other false documents. Pahutski was originally indicted in this case in connection with a scheme involving closing attorney Victoria Sprouse and real estate investor Stephen Hawfield, in which approximately 210 houses were purchased in a “flip scheme” through fraudulent mortgage applications to nBank for more than $15 million.
U.S. District Judge Martin Reidinger pronounced the 19 year sentence. In doing so, Judge Reidinger explained that he hoped others would note the sentence, and “see that they do not want to become mortgage fraudsters.” The Judge noted that the offense had caused substantial damage to nBank, which failed, and also had caused substantial damage to our financial system. Judge Reidinger said that the heavy sentence was based in part on the fact that Pahutski had been entrusted by the state of North Carolina with a license, and “was supposed to have been part of the firewall to prevent this [mortgage fraud] from happening, but instead became part of the problem.” Following the sentencing hearing, Judge Reidinger ordered that Pahutski be immediately taken into custody and
detained as a flight risk.
The case was investigated by Special Agents of the FBI, Charlotte, Special Agents of the IRS-CI, U.S. Postal Inspectors, and criminal investigative personnel of the NC Insurance Commission. The case was prosecuted by Assistant U.S. Attorneys Kurt W. Meyers and Jenny Sugar of the U.S. Attorney’s Office, Criminal Division, Charlotte, NC, as well as former Assistant U.S. Attorney Matthew Martens.
United States v. Pahutski, et al
Docket Number: 3:07CR211
Michael D. Pahutski, 48 (Loan Officer)
Guilty plea entered 3/3/09
Sentenced 5/6/11 to 228 months imprisonment to be followed by a five-year term of supervised release, 200 hours of community service, and ordered to pay $3,563,125.27 in restitution
Victoria L. Sprouse, 40 (Closing Attorney)
Jury trial 3/23/09 – 4/1/09
Guilty verdict by jury 4/1/09
Michael Gee, 61 (Appraiser)
Hilton Head, SC
Guilty plea entered 3/10/2009
Sentenced 6/24/10 to 24 months imprisonment to be followed by a three-year term of supervised release and ordered to pay $3,563,125.27 in restitution
Gregory A. Mascaro, 44 (Real Estate Agent)
Guilty plea entered 6/9/08
Sentenced 2/27/09 to 24 months imprisonment to be followed by a three-year term of supervised release and ordered to pay $62,361.21 in restitution
Jules Springs, 43 (Loan Officer)
Guilty plea entered 7/7/08
Sentenced 5/19/09 to 24 months imprisonment to be followed by a three-year term of supervised release and ordered to pay $62,361.21 in restitution
Gregory D. Rankin, 36 (Real Estate Agent)
Guilty plea entered 6/25/08
Sentenced 2/27/09 to five years probation, first 23 months under home confinement
If you have knowledge of any of these who were involved in this massive scheme…please feel free to share your insights.
YOUR COMMENTS ARE WELCOME!