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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Madoff Ponzi Scheme – How Do Folks Get De-Frauded? Comments by White Collar Crime Speaker Chuck Gallagher

December 20, 2008

The headlines are riddled with questions.  How do people get sucked into white collar crimes?  Didn’t they do their do diligence?  The Madoff scandal has more people asking more questions than any white collar crime in recent history and there are more to come.  Amazing, but the answer is often found in the comments made by those who have been directly touched by Madoff’s actions.

In a recent AP story the following was stated:

Signing up companies for office space in Manhattan skyscrapers made Norman F. Levy a very rich man.

In the hotly competitive but tight-knit world of New York commercial real estate, Levy worked across more than seven decades brokering leases in midtown’s towers. When he died in 2005 at 93, he was hailed as an elder statesman of the trade whose zest for the deal was matched by his generosity with both friendship and money.

“Your spirit and love of life have touched and changed all who knew you,” one friend of 40 years wrote in a paid death notice for Levy that ran in The New York Times. “You taught me so much. I’ll cherish our relationship forever.”

The friend was Bernard Madoff.

The real estate broker and the money manager were separated by 26 years, but they and their families had formed a friendship reinforced by shared interests, social circles — and trust.

Levy and Madoff were active in some of the same organizations, like New York’s Yeshiva University. They donated their money to many of the same causes — groups including the Lincoln Center Theater and Gift of Life, a South Florida charity that tries to save Jewish leukemia victims by matching them with bone marrow donors.

In the summer, both families headed to the Hamptons. When Norman F. Levy died, he was staying at his daughter’s house fronting the Atlantic in Montauk, just a few sprawling lots away from the mansion owned by the Madoffs.

For more than 30 years, the Levys also entrusted their personal investments to Madoff. When they chartered the Betty and Norman F. Levy Foundation — which reported assets last year of $244.4 million — as the vehicle for their charitable giving, they again put their trust in their longtime friend.

The story, apparently one of many now starting to surface, talks of connection, friendship and most of all TRUST.

The question – how does one get defrauded is obvious.  One of the key critical factors is “trust.”   In order for a scam or fraud to be effected there are three components that all must come together: (1) need; (2) opportunity and (3) rationalization.  Those are the tools of the fraudster and if any one is missing the fraud doesn’t happen.  But in order to be defrauded you must, as I call it, step into the PIT.   A prior blog post talks about the PIT.  But for a short explanation the PIT means: A Promise (P) which creates and Illusion (I) which is supported by Trust (T).  Trust for the person or organization being scamed is critical.

An outstanding article in the Charlotte Observer.com stated in the first paragraph:

For sheer toe-curling embarrassment, it may be a while before Wall Street does better than the Bernard Madoff scandal. Here was a rogue who practically telegraphed his unreliability by hiring a tiny, no-name audit firm, by reporting monthly investment results that never fluctuated and by claiming a trading strategy that could not possibly have been implemented given the billions of dollars he managed. And yet, despite these warnings, the rich, the famous and the supposedly sophisticated entrusted their money to Madoff, who defrauded them with the most laughably crude of methods – an old-fashioned Ponzi scam.

Think about what is said up above – how many clues could one recieve before bells of warning would go off?  Reality is – people, especially those who believe that they deserve or should receive better than most, place their desire and “trust” above their intellect.  That’s when the suckering begins.  Unfortunately the devastation that follows is both financial and emotional.

The New York Times stated the following:

He provided little information and demanded a lot of trust.

“You have a lot of wealthy people who made a lot of money on handshakes,” said Mark S. Weiss, a commercial real estate broker at Newmark Knight Frank, where several brokers had invested heavily with Mr. Madoff. There was “something about this person, pedigree and reputation that inspired trust,” he said.

Across the city, industry executives said deals had been scuttled or jeopardized because of the scandal. Residential brokers are taking calls from Madoff investors who have had to put their apartments on the market. Many developers had pledged their investments with Mr. Madoff as collateral for projects, and are now worried that their banks will call in their loans.

“The level of devastation, both financial and on a human level, is astounding,” said Robert J. Ivanhoe, a lawyer who is representing 10 developers and investors who lost $5 million to $50 million each with Mr. Madoff.

As a former white collar fraudster (not something I’m proud of) the reality is the pattern is predictable.  Fraud to the victim is a function of trust and illusion.  Madoff, seemed to be the consumate illusionist and had unparelled trust.  His trust propelled the scheme and now we are at the beginning of finding just how devastating the effects will be.

More to come…

As a business ethics and fraud prevention speaker I routinely working with companies on a confidential basis to evaluate and eliminate fraud.  For more information or for comments related to ponzi schemes – contact me at chuck@chuckgallagher.com or 828.244.1400.


Sharpe James Ex-Mayor of Newark – GUILTY – Corruption in Real Estate Scheme!

April 21, 2008

Anyone accused of a crime deserves their day in court. Former mayor Sharpe James got his and along with it a big fat guilty verdict for his unethical behavior! Guilty on all corruption charges that enabled his girlfriend, Tamika Riley, to fraudulently obtain steeply discounted city-owned land and resell it for hundreds of thousands of dollars in profits.

Riley was convicted with James on the same five charges: three counts of mail fraud related to the sale of the city lots to Riley, one count of fraud involving a local government receiving federal funds, and one count of conspiracy to defraud the public of James’ honest services.

“Sharpe James was among the most powerful and well-known political figures in New Jersey history, but he was not above the law. Justice has finally been done,” U. S. Attorney Christopher J. Christie said. “There were deep passions on either side of this case. But what everyone should now recognize is that 12 ordinary citizens from New Jersey heard the evidence and independently found what we’ve said all along – that Sharpe James is guilty of stealing from Newark and its citizens and of using Newark resources for his personal benefit.”

James remains under indictment on another set of charges related to his alleged fraudulent use of city credit cards to fund lavish trips with female companions, including Riley, and other personal expenses. Christie said he will consult within the office, with federal investigative agencies and with state Attorney General Anne Milgram before deciding how to proceed on those charges.

The prosecution was built around the sale to Riley of municipally-owned properties in Newark. The properties were steered to Riley by James, who had a long-running romantic relationship with her. Riley paid only $46,000 for a total of nine properties, and then quickly resold, or “flipped” the properties for more
than $600,000.

James used his influence and power as both mayor and as a state senator to manipulate and control a city program designed to redevelop run-down properties in the city. The program was intended to enable experienced, financially sound and qualified developers to buy blighted lots and houses at substantially less than market rates on the condition that they rehabilitate the properties before re-selling them at market prices. With James’s help, Riley acquired the properties at cut-rate prices and resold them without any rehabilitation.

Riley had no real estate or construction experience and did not possess the financial wherewithal or backing required to participate in the program. She was, in fact, the owner of a failed Newark clothing store and had operated an entertainment and public relations firm that reported no income or assets on tax returns in 1999 or 2000, the years before she started flipping Newark properties.

Throughout the period of their relationship and the property transactions benefitting Riley, James and Riley traveled and socialized together, shared hotel rooms and stayed in fine resorts, among other things. Testimony also revealed that James once directed his security personnel to purchase and install an air-conditioner in Riley’s Jersey City apartment. Riley also donated several times to James’ political campaigns.

According to a New York Times report, “Mr. James stood stony-faced and Ms. Riley appeared stunned as the jury foreman delivered the verdict, then quickly left the courtroom. Mr. James then took an elevator to the first floor of the federal courthouse, where he kissed his wife, Mary, on the cheek.”

Ethics Comments: Sharpe James was mayor for 36 years. What a sad way to end a career. However, as I say often when addressing groups: Every choice has a consequence. It’s funny – not haha funny, but odd – it seems the longer a person is able to get by with behavior that is unethical or wrong, the greater chance they have of perpetuating that behavior.

My guess (and it’s only a guess) is that James has been an honest man. He was well respected and, likely, proud of his service to the city – at least at first. Then, as time went by, he, like most white collar criminals, began to feel invincible. When you first do something wrong and there is no immediate consequence, you begin to feel that there is no consequence. Then you begin to feel that it just isn’t wrong – that somehow you’re entitled.

No one is entitled and you do reap what you sow. Perhaps with the history of Newark one assumes that actions like James are acceptable since five of the last seven mayors have been indicted. Hum…don’t think I’d want that job if it were given to me…

Judge Martini scheduled sentencing for James and Riley for July 29. Both will receive active prison sentences is my prediction. Having been in their shoes, I suspect that the time they are given now will be precious, as time in federal prison is reflective and lonely.

Business Ethics and White Collar Crime speaker – Chuck Gallagher – signing off…


Mortgage Fruad Nets Randall Aaron Davidson Ten Years In Federal Prison – Comments By Business Ethics Speaker Chuck Gallagher

March 30, 2008

You reap what you sow. This is a lesson I learned years ago when I stood before a judge and was sentenced to federal prison. I am not proud of my past or the choices I made to get the sentence I received, but one thing I learned clearly is – You reap what you sow.

prison-fence.jpg

Randall Aaron Davidson, age 58, of Fairborn, Ohio has now learned that as well as he was sentenced to 10 years imprisonment for his role in a conspiracy that defrauded real estate investors and banks of more than $20 million over a seven year period.

According to the US Attorney’s office, Davidson led a scheme that involved manipulating documents associated with real estate sales and closings in order to obtain excess mortgage loan proceeds generated from the property sales.

Mary J. Donaldson, Michael McWhirter, Jocelyn Hammond and others were charged along with Davidson in a 14-count indictment on September 14, 2005 with multiple felonies, including money laundering, conspiracy to commit money laundering, conspiracy to conduct fraudulent real
estate transactions, bankruptcy fraud, mail fraud, wire fraud, and falsifying loan applications. Davidson pleaded guilty on February 9, 2007 to one count of bankruptcy fraud and one count of conspiracy to commit money laundering, along with one count of income tax evasion charged in a separate bill of
information. Davidson instigated the mortgage fraud scheme in 1998, which continued until his arrest and indictment in 2005.

As is true in many federal cases, from the time of indictment and arrest to the time of sentencing, many years can pass. More about the crime from the US Attorney’s news release:

As leader of the conspiracy, Davidson owned and operated Capital Properties, Knab Mortgage, MJR Telecapital Investments, MTR Property Consultants, and Restoration, Inc. among others. Davidson recruited unsuspecting investors to purchase low income, dilapidated and depressed properties in the Dayton area at prices artificially inflated above legitimate fair-market values. The
mortgages were financed with fraudulent loans facilitated, brokered and closed by Davidson and his conspirators. The conspirators provided the down payments on the properties, paid kick backs to the loan applicants, and opened bank accounts to disguise the true nature, location, source, ownership and
control of the proceeds and profits from the transactions. Davidson also evaded payment of more than $359 thousand in taxes on his $1 million earnings in 2002. At the conclusion of his prison term, Davidson must serve five years on supervised release. He was also ordered to pay a money judgment of $13.1 million.

NOTE: As a speaker on business ethics and white collar crime, I often receive calls from people who have been scammed by activities much like have been reported above. In some cases “straw buyers” are recruited in unsuspecting ways. The call I received just last week reported that he (unnamed for privacy purposes) had been recruited to help out a neighbor – after all had been said and done, his kindness was rewarded by ruining his credit as he was effectively made a straw buyer for a mortgage fraud scheme. REMEMBER: if you don’t know everything that is taking place and why, don’t do it!

Timothy Pearson was charged in a separate bill of information for his role in the conspiracy. Pearson pleaded guilty on March 12, 2007 to one count of conspiracy to commit money laundering and two counts of attempting to evade of defeat federal income tax. According to the statement of facts filed in court, Pearson participated in approximately 365 fraudulent real estate closings, helping his co-conspirators obtain in excess of $13 million in the scheme. Pearson is scheduled for sentencing in April.

Now, you have to know that he’s sweating his sentencing since Davidson got 10 years!

Serving as the closing agent for many of the fraudulent real estate transactions, Jocelyn Hammond was charged in a separate bill of information with conspiracy to commit mail fraud, wire fraud and money laundering. Hammond pleaded to the charges against her on January 29, 2008 and is
scheduled for sentencing in May.

Likewise, I’m sure there’s concern after seeing a 10 year prison sentence imposed.

The victims in the conspiracy included more than 70 financial institutions located throughout the United States that were tricked into making loans in excess of the true market value of the homes, along with over 38 real estate investors who were left with overvalued, virtually uninhabitable rental property on which they owed more than the property was worth. The conspiracy involved the fraudulent closing and sale of over 350 residential properties, 300 of which were located in Montgomery County, Ohio.

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 Davidson and others may have looked good for a time and avoided the consequences – they did not avoid the consequences all together. Prison is no fun and Davidson is facing 10 years plus substantial restitution for his conviction. Likely he will serve time and that will prove to be a dramatic change from his prior activities. You do reap what you sow.

If anyone reading has any background on Davidson or was defrauded by him – 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…


Arlington, Texas Appraiser – Gandhi Ben Morka – Sentenced to 5 Years! Comments by Business Ethics Speaker Chuck Gallagher

January 28, 2008

False appraisals for property purchased in the Dallas / Fort Worth area lands Gandhi Ben Morka a 60 months federal prison sentence and a $2.3 million restitution bill!

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Background: Seems that Morka, age 52, from Arlington, TX was convicted on one count of conspiracy to commit mail fraud and wire fraud, four counts of wire fraud and two counts of mail fraud. The government presented evidence at trial that Morka conspired to defraud Countrywide by locating single family residences in and around the Dallas, Texas area that were for sale and recruiting straw purchasers and borrowers to purchase the targeted residences. Then Morka would prepare appraisals on the properties, inflating the value to an amount far greater than the fair market value, double in most instances.

Every choice has a consequence. As a business ethics speaker, (www.chuckgallagher.com) I find that more and more as I speak to financial institutions the theme of mortgage fraud rears its ugly head. There are three components to most frauds: (1) need or perceived need; (2) opportunity; and (3) rationalization. As we entered the era of easy credit and sub-prime mortgages, there was almost too much opportunity and without effective controls in place the landscape was ripe for fraud.

Now as we see the pendulum swing the other way the crimes that have been committed are coming to light. Morka has been in the custody of the bureau of prisons since his conviction in late August, ’07. With the time he will be facing, he will be able to reflect on the effectiveness of doing a proper appraisal – although that service he will likely be prohibited from ever doing again.

Business Ethics Speaker – Chuck Gallagher – signing off…


Foreclosure Fraud – An Interesting Variation of Mortgage Fraud – Comments Ethics Speaker Chuck Gallagher

January 3, 2008

 Chuck Gallagher, Ethics Speaker

Recently I receive an e-mail related to several of my more recent posts on Mortgage Fraud – note this will be one of the hot topics in 2008!  The writer gave permission to share so in the interest of the readers of this post I am reprinting the e-mail content.

The worse factor of the Mortgage Mess is FORECLOSURE FRAUD committed via DEBT COLLECTION abuse and deception.  It is HIGHLY COMMON for a DEBT COLLECTOR attorney to file a foreclosure naming a DEFUNCT mortgage company, or naming a mortgage company which is NO LONGER holder of the promissory note; or file a foreclosure affixing a “ransom” amount (the collector’s fee) far exceeding the “Acceleration Clause.” Even worse, when homeowners sue for “Unfair Debt Collection Practices,” and various damages, the collector gets to make even more $$ through prolonged litigation while leading mortgage companies to believe the homeowner is the reason for those multiplied costs. Irrefutable proof of foreclosure fraud and judicial collusion is posted on www.lawgrace.org

For these very reasons any representation about $$$ billion dollar losses due to people defaulting on mortgages should be weighed against the fact that certain mortgage giants needlessly pay DEBT COLLECTION firms outrageous legal fees for their lawyers to outmaneuver -and even persecute people who file court proceedings in opposition to fraudulent foreclosures.

EXAMPLE:  In one actual situation, for a purported debt of $86,000.00, through use of a non-existent mortgage company, attorneys racked up more than a quarter of a million dollars in legal fees.  Afterward, that property was sold to a 3rd party for $37,000.00. (The dollar amounts are rounded off.)  Thus, Securities Investors realized nothing, and nothing practical was accomplished by evicting the homeowners (except for the collectors). Even property value declined in that neighborhood.  Additionally, some collectors even file in Bankruptcy Court falsified motions To “Lift Stay” pleading for purposes of accomplishing SIMULATED AUCTIONS of real estate properties.  Also, as an added measure to heighten chances of judicial
favor, these collectors propagate that the defaulted property owners are costing their clients all those legal expenses.  But the true culprit is the collectors’ fraud and racketeering conduct. (This has to be the meanest exploitation and malignment against persons faced with becoming homeless!)

Furthermore, this kind of debt collector enables MORTGAGE COMPANIES to ILLEGALLY FLIP property, and thereby  deceive Securities Investors about the real estate market.  Thus, unscrupulous mortgage companies do not care what the collectors do, even when they loose money off the foreclosure. In States such as Louisiana, 2 particular mortgage
companies which benefit from fraudulent foreclosures are Wells Fargo and FREDDIE MAC.

Securities Investors need to become more knowledgeable, responsible and take action about debt collectors as well as mortgage servicers’ misdeeds which hurts borrowers as well as siphons incalculable amounts of money from what Investor profits.  Also, see “Limiting Abuse and Opportunism By Mortgage Servicers,” AND  “Private Property Rights
Deferred: Has Predatory  Mortgage Servicing Destroyed The American Dream” by Rawle Andrews, Jr.,  Esq.,and Leroy Jones, Jr., J.D.  at http://www.msfraud.org/index.html.  In the near future because of negligence, Investors will likely be subject to liabilities for the above-described misdeeds.

While most of the mortgage frauds I follow have similar patterns (many of which mean that those involved end up in prison), I have not seen substantial abuse in foreclosure fraud.  That said, it doesn’t mean it isn’t an issue (likely it is).  It is I don’t find it on my radar screen for review and comment. 

Additional links were provided by the author Barbara Ann Jackson.  Thanks for Barbara for her work and the information contained herein:

Mortgage Mess, Foreclosure Fraud and Impediments to Justice
http://newsblaze.com/story/20071203130614tsop.nb/newsblaze/TOPSTORY/Top-Stories.

“ILLEGAL REAL ESTATE FLIPPING…”
http://www.lawgrace.org/2007/06/21/illegal-real-estate-flipping-unfair-enrichment-etc/

Comment on the Foreclosure of Judge Reginald Badeaux’s Home
http://www.lawgrace.org/2007/12/08/my-december-7-2007-comment-posted-to-the-times-picayune-blog-about-the-news-article-entitled-%e2%80%9cjudge-gets-debt-reprieve-badeaux-has-skipped-mortgage-payments%e2%80%9d-the-foreclosure-of-this-lo/

Casualties From New Orleans Ineptness and Corruption Coming To A City
Near You http://www.lawgrace.org/2006/06/30/casualties-from-corruption/

Federal Judges’ Pay Raise; New Orleans Federal Judiciary Call To
Impeach
http://newsblaze.com/story/20080101084831tsop.nb/newsblaze/TOPSTORY/Top-Stories.html

Business Ethics Speaker http://www.chuckgallagher.com  – Chuck Gallagher – off for now!