Former Chairman & Exec Director Winston-Salem Housing Authority indicted

In the following press release on August 28, 2008 U.S. Attorney Anna Mills Wagoner for the Middle District of North Carolina announced that a federal grand jury in Greensboro has charged ERNEST HAROLD PITT, THOMAS PARRISH TROLLINGER, and JAMES REID LAWRENCE, in a scheme to defraud the Housing Authority of the City of Winston-Salem, NC (“HAWS”).

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Press Release

The 10-count indictment, returned Tuesday August 26, 2008, alleges that the defendants acted to defraud HAWS by having it loan $414,000 to Forsyth Economic Ventures, Inc. (“FEV”), for the purchase of property (23 lots in the Lansing Ridge Subdivision) owned by East Pointe Developers, LLC (“EPD”), without disclosing to HAWS the financial interests of PITT and ROLLINGER in EPD, and without the knowledge or approval of the HAWS Board of Commissioners (“HAWSBOC”) or the FEV Board of Directors. At the time of the transaction, PITT and TROLLINGER were the sole managers of EPD, directed its operations and received the profits from it. PITT was also Chairman of the HAWSBOC and President of FEV. LAWRENCE was Executive Director of HAWS and Vice President of FEV. The indictment alleges that PITT and TROLLINGER each received $84,000 as a result of the transaction. PITT and LAWRENCE thereafter obtained a bank loan in the amount of $414,000 on behalf of FEV to repay HAWS, again without the knowledge or approval of the HAWSBOC and the FEV Board of Directors.

If convicted of the allegations in Count One of the Indictment, the defendants face a maximum of 20 years in prison. If convicted of mail fraud as alleged in Counts Six and Seven, the defendants also face a maximum of 20 years in prison. The money laundering charges contained in Counts Two through Five against PITT (2, 3, 4) and TROLLINGER (2, 5) carry a maximum 10 year prison sentence. LAWRENCE is charged in Counts Eight and Nine with making materially false statements during the ensuing investigation.

TROLLINGER is also charged, in Count Ten, with making materially false statements during the investigation of the transaction. If convicted of Counts Eight, Nine or Ten, those defendants face up to 5 years in prison. Conviction of any of the counts in the Indictment may also result in imposition of a $250,000 fine. The charges in this indictment are the result of an investigation conducted by the Federal Bureau of Investigation and the Department of Housing and Urban Development (HUD) - Office of Inspector General.

An indictment is not evidence of guilt. All persons charged with a crime are presumed innocent until proven guilty beyond a reasonable doubt.


Owner of FL mortgage companies & title agencies indicted

In the following press release R. Alexander Acosta, United States Attorney for the Southern District of Florida, Henry Gutierrez, Inspector in Charge, U.S. Postal Inspection Service, Donald B. Saxon, Commissioner, State of Florida, Office of Financial Regulation, and Michael K. Fithen, Special Agent in Charge, U.S. Secret Service, announced on 8/29/08 that Magile Cruz, a/k/a “Maggie Cruz,” a/k/a “Magile Cruz-Rodriguez,”a/k/a “Magile Araujo,” a/k/a “Ros Rodriguez,” was charged in a multi-million fraud scheme that resulted in more than $24,000,000 in fraudulent mortgage loans, and losses of more than $5,000,000 to lenders. Cruz was charged with conspiracy to commit mail fraud and wire fraud, in violation of Title 18, United States Code, Section 1349, and with substantive counts of mail and wire fraud, in violation of Title 18, United States Code, Sections 1341 and 1343. If convicted, she faces a maximum sentence of 20 years on the conspiracy charge and on each substantive charge of mail and wire fraud.

According to the Indictment, Cruz was the de facto owner of Star Lending Mortgage, State Mortgage Lending, Sherley Title Services, Doral Title Services, and Professional Title Express. Star Lending Mortgage was a mortgage brokerage company while State Mortage Lending was a mortgage lending business. Both were licensed to do business in the State of Florida. Sherley Title Services, Doral Title Services, and Professional Title Express were title agencies and were not licensed by the State of Florida. Cruz is alleged to have used employees and friends as the nominee owners for all five companies, and personally managed the businesses, including all the financial affairs of the companies.

Between 2005 through 2007, Cruz was engaged in a scheme to obtain fraudulent mortgage loans for the purchase of 79 properties in Miami-Dade and Broward Counties. To execute the scheme, Cruz would identify residential properties for sale through Star Lending Mortage and State Mortgage. Cruz and other co-conspirators would recruit and pay straw buyers for the selected properties. Cruz and her co-conspirators would then prepare and cause to be prepared fraudulent mortgage loan applications on behalf of the straw buyers. The applications included false employment verifications, pay stubs, verification of income and funds on deposit, and IRS Forms W-2.

Thereafter, Cruz and her co-conspirators, including the straw buyers, would create and submit to the banks and lending institutions false HUD-Settlement Statement Forms, also known as HUD-1s, which concealed from the lending institutions, among other things, the existence of a second HUD-1 prepared for the same transaction with a lower sales price for the property. In other instances, Cruz would fraudulently obtain multiple loans from various lenders for the same parcel of property, all unbeknownst to the lenders involved. Finally, Cruz would similarly seek and obtain fraudulent loans on properties for which there was no true sale by stealing the identity of the seller and fabricating a transaction with a straw buyer.

According to the charges, the straw buyers would allow their identities and credit information to be used in the mortgage loan applications, falsely representing themselves to be the true buyers of the properties and the individuals responsible for the loan. Cruz and her co-conspirators would create and submit to banks and lending institutions fraudulent title documentation, including false closing protection letters, falsely representing that Sherley Title Services, Doral Title Services and Professional Title Express were agents for Fidelity National Title and/or Old Republic. In fact, however, these companies were not authorized by Fidelity National Title and/or Old Republic to act as their agents and to issue such documentation.

Once the mortgage applications were approved, the lenders would wire the loan proceeds to Sherley Title Services, Doral Title Services, and Professional Title Express for closing. At closing, Cruz and her co-conspirators would receive a credit for the difference between the inflated price and the actual selling price of the property. Cruz and her co-conspirators would then execute and file Change of Address forms with the United State Postal Service on behalf of the straw buyers, thus concealing from the individual actually living at the address that the subject property had been fraudulently sold.

Cruz would make the payments on the mortgage loans to maintain the loans afloat until the properties could be resold again, often to another straw buyer. When she failed to make payments on the loans, some properties went into foreclosure, resulting in substantial losses to the lending institutions.

Mr. Acosta commended the investigative efforts of the U.S. Secret Service, the U.S. Department of Housing and Urban Development - Office of Inspector General, U.S. Postal Inspection Service, and the City of Marco Island Police Department. The case is being prosecuted by Assistant U.S. Attorney Lois Foster Steers.

A copy of this press release may be found on the website of the United States Attorney’s Office for the Southern District of Florida at http://www.usdoj.gov/usao/fls. Related court documents and information may be found on the website of the District Court for the Southern District of Florida at http://www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.


Owner of marina sentenced in mortgage fraud case

On August 20, 2008 it was announced by United States Attorney Catherine L. Hanaway and St. Charles County Prosecuting Attorney Jack Banas that John “Jack” Gorecki was sentenced to twenty-seven months in prison on bank fraud charges involving false loan applications submitted to financial institutions in the St. Louis area.

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NC man sentenced - stole SSN to get 2nd mortgage

In the following press release Acting United States Attorney Julia C. Dudley announced on 8/26/08 that Jonathan Randall Frizzelle, age 57, of Raeford, North Carolina, was sentenced yesterday in the United States District Court for the Western District of Virginia in Danville for his participation in a variety of fraudulent activities.

Frizzelle was charged in a four-count indictment in July 2007 with two counts of bank fraud, one count of aggravated identity theft and one count of misusing a Social Security number. On May 8, 2008, the defendant entered a guilty plea on two counts of bank fraud and one count of aggravated identity theft.

Yesterday in District Court, Frizzelle, a.k.a. “Johnny E. Frizzell” and “Johnny Frizzelle,” was sentenced to 42 months of Federal incarceration and five years of supervised release thereafter. He was also ordered to pay restitution in the amount of $63,178 and a special assessment of $300.

“Mr. Frizzelle deceived the Federal government and received money to which he was not entitled,” Acting United States Attorney Julia C. Dudley said today. “The United States Attorney’s Office will continue to investigate, charge and prosecute all individuals who defraud the government and steal from the American people.”

According to court documents and evidence presented by Assistant United States Attorney Sharon Burnham, beginning In April of 1967 and continuing until June of 2004, Frizzelle applied for, and was issued, a number of Social Security cards containing at least two different Social Security numbers. These cards were used to secure employment beginning in 1967 and continuing until 2004.

In one instance beginning in 2006, Frizzelle worked at H&H Constructors earning as much as $1,650 per two-week pay period. The defendant secured employment by using a Social Security number that had been issued to his son.

In addition to using fraudulent Social Security numbers to gain employment, Frizzelle also used a variety of false Social Security numbers to obtain disability benefits from the Social Security Administration and the Department of Veteran Affairs (VA). The defendant used a different Social Security number with each agency and told officials from both the Social Security Administration and the VA that he was unable to work due to a medical condition.

Furthermore, neither agency knew the defendant was receiving benefits from the other, information that would have been used to determine the amount of money and benefits, if any, Frizzelle received each month.

On April 5, 2006 Frizzelle applied for a second mortgage on his home from Community National Bank in South Boston, Virginia. In the application, the defendant listed his monthly income from H&H constructors, earned under his son’s Social Security Number, and submitted a pay stub as proof of income. Frizzelle also stated that he received benefits from the VA and the Social Security Administration in the amount of $1,880 per month.

Frizzelle committed bank fraud when he attempted to defraud Community National Bank by trying to obtain monies while concealing the fact that some of the income and benefits he was receiving from the VA and Social Security Administration, and had listed on his loan application, were obtained under false and fraudulent circumstances.

In addition, Frizzelle committed aggravated identity theft when he used, without lawful authority, the Social Security Number of another individual, namely his son, during a felonious act.

One of the considerations in Frizzelle’s sentence was his previous history of fraudulent activity. In 2000, he pled guilty devising a scheme for obtaining money by submitting his own fake death certificates to banks and insurance companies, which it turn would cause the payment of insurance proceeds on his behalf. Frizzelle served 27 months in Federal prison for his previous offense.

The investigation of the case was conducted by the Social Security Administration, Office of Inspector General. Assistant United States Attorney Sharon Burnham prosecuted the case for the United States.


Four Arrested in wideranging Texas fraud scheme

In the following press release Texas Attorney General Greg Abbott announced that three previously indicted defendants operating a Navarro County mortgage scam were arrested Thursday by Texas Attorney General Greg Abbott’s investigators and other authorities. The arrests tie to new but related charges stemming from their more recent Kaufman County operations.

Kandace Marriott, 52, and Darrell L. Marriott, 55, of Gun Barrel City in Henderson County, as well as their daughter, Kally Marriott, 22, of Dallas County who has not been indicted, were arrested at their residences. They are being held on $5 million bond each in Kaufman County. Another defendant indicted in February, Karen Hayes, 57, of Kemp in Kaufman County surrendered to authorities Thursday and is also under $5 million bond.

The Office of the Attorney General received assistance from the Kaufman County Criminal District Attorney’s Office, the FBI and the U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General. Attorney General Abbott’s Criminal Prosecutions Division is leading the prosecution of the four defendants with the cooperation of district attorneys’ offices in Navarro, Henderson and Ellis counties.

The four, three of whom were previously indicted in Navarro County in February on separate but related felonies, were arrested and charged with five new felony offenses in Kaufman County. They schemed to forge signatures and falsify home loan applications for prospective homeowners who would not have qualified for loans backed by HUD. They are charged with:

  • Engaging in organized criminal activity;
  • Making false statements to obtain property or credit;
  • Securing the execution of documents by deception;
  • Misapplication of fiduciary property;
  • Money laundering

The four have operated a Kaufman County real estate business since late 2005 known as Torenia Inc., doing business as Energy Homes. Because the four continued to operate this allegedly fraudulent enterprise even after the announcement of the Navarro County indictments last February – and have continued to operate this business until last week – Attorney General Abbott’s prosecutors sought and received a court order Friday increasing their bonds to $100,000 each in the pending Navarro County case. The four closed their previous Navarro County business, One Way Home & Land, after litigation and investigations in late 2005 and moved their enterprise to Kaufman County under a new assumed name, Torenia.

Another defendant indicted in Navarro County last March, employee Bret Harwell, 45, pleaded guilty Friday in district court to securing the execution of a document by deception, a state jail felony. He will serve two years probation. One other defendant, Debra Grace, 47, pleaded guilty to a second-degree felony charge of securing the execution of a document by deception. She was placed on eight years probation.

The alleged scheme to defraud HUD cost the federal government and taxpayers millions of dollars. According to the state’s enforcement action, the four supervised the falsification of residential loan applications to ensure that the buyers’ loans would be approved by mortgage lenders. Investigators found that the defendants repeatedly falsified supporting documents and information, including the buyers’ rent payment verification statements, proof of employment and information about Social Security Administration benefits, among other documents.

The defendants targeted lower-income purchasers whose residential loans would be guaranteed by HUD. As a result, when unqualified buyers soon defaulted on their home loans, their mortgage lenders did not suffer the losses. Rather, HUD as guarantor of the loans, had to cover these costs. In the Navarro County scheme, investigators believe the four cost the taxpayers more than $3 million.


Illinois AG files suit against foreclosure rescue company

In the following press release Illinois Attorney General Lisa Madigan today continued her aggressive legal fight against mortgage fraud by filing a lawsuit against a Clearwater, Fla., company which operates a rescue fraud scheme that preys on vulnerable homeowners on the verge of foreclosure. This is the 14th lawsuit Attorney General Madigan has brought against mortgage rescue fraud companies.

Madigan filed suit in Cook County against Law & Associates LLC, and its managing member, Thomas E. Law, II, alleging the defendants violated the Mortgage Rescue Fraud Act and the Consumer Fraud and Deceptive Business Practices Act by falsely promising to help consumers save their homes after falling behind on their mortgage payments. According to the complaint, the defendants charged consumers up to $1,900 and promised to provide mortgage foreclosure rescue services that they either failed to perform the services or only performed ineffective services. Attorney General Madigan’s Consumer Fraud Bureau has directly received one complaint relating to the defendant and 68 complaints referred from the Better Business Bureau.

“In the midst of the mortgage foreclosure crisis, unscrupulous people are using so-called mortgage rescue scams to prey on vulnerable homeowners,” Attorney General Madigan said. “I am continuing to take aggressive action against these illegal schemes to send the message that their deceptive and fraudulent practices are not welcome in Illinois.”

Madigan’s lawsuit alleges Law & Associates market mortgage rescue services to at-risk homeowners, encouraging them to call a toll-free number where they are told there is an upfront fee of $1,990 for mortgage rescue services. Consumers who indicate they cannot afford the charge are offered a reduced rate of $1,800 on a payment plan that must be paid in full prior to them receiving any mortgage rescue services. The defendants also promise desperate homeowners that the service fee is refundable if the company is not able to successfully negotiate an agreement with the homeowners’ mortgage lenders or provide a “viable strategy” to avoid foreclosure. The lawsuit alleges the defendants fail to provide the services promised and fail to refund the service fee.

Madigan’s suit asks the court to prohibit the defendants from engaging in mortgage rescue practices. The suit also seeks a civil penalty of $50,000, additional penalties of $50,000 for every violation found to have been committed with the intent to defraud, and a $10,000 penalty for each violation committed against a person 65 years or older. Further, the suit asks the court to rescind the contracts signed as a result of these deceptive practices and offer full restitution to affected consumers. Finally, Madigan’s suit asks the court to order the defendants to pay all costs associated with the investigation and prosecution of the lawsuit.

The lawsuit is part of Madigan’s ongoing work to curtail the foreclosure crisis and help Illinois families stay in their homes. Madigan’s office has sued 14 mortgage rescue companies to stop deceptive practices and successfully participated in three multi-state settlements against major subprime lenders: Household Finance, Ameriquest and First Alliance Mortgage Company. To date, Madigan’s office has obtained nearly $900 million in enforcement actions against these lenders.

Last year, Madigan announced a comprehensive strategy to address the looming home foreclosure crisis in Illinois. As part of this effort, Madigan’s office hosted a statewide home ownership preservation summit in July 2007, bringing together more than 100 participants from the mortgage lending industry, consumer advocacy groups and government agencies to identify problems and look for solutions to mortgage foreclosures.

On the legislative front, Madigan worked to pass the High Risk Home Loan Act of 2003, and drafted the Mortgage Rescue Fraud Act of 2006, which was designed to deter scam artists from preying on vulnerable homeowners on the verge of foreclosure. The Attorney General also initiated and drafted the Illinois Homeownership Protection Act, a new law that tightens controls on brokers and lenders to prevent consumers from being unwittingly locked into questionable loan terms.

Madigan also has sued mortgage giant Countrywide Home Loans, Inc., for deceptive and fraudulent loan origination practices. Additionally, she has issued fair lending subpoenas to Countrywide and Wells Fargo Financial Illinois, Inc., to determine whether these companies steered African American and Latino borrowers into higher cost or otherwise inappropriate home loans in violation of fair lending and civil rights laws.

Madigan urged Illinois homeowners who are facing foreclosure to immediately contact their mortgage company or a HUD-certified housing counselor for assistance. To get a referral to a certified housing counselor or to learn more about the steps to take to avoid foreclosure, homeowners can call Madigan’s Homeowners’ Referral Helpline at 1-866-544-7151 from 8 a.m. to 5 p.m. Monday through Friday.

Homeowners also can visit Attorney General Madigan’s Web site at www.IllinoisAttorneyGeneral.gov, to access the Illinois Mortgage Lending Guide, a resource manual containing step-by-step instructions for those struggling to make their loan payments and a list of HUD-certified counseling agencies that offer default counseling services. Homeowners who do not have easy access to the Internet should call the Attorney General’s Referral Helpline to request a copy of the guide by mail.

Assistant Attorney General Kevin Rouse is handling the case for Madigan’s Consumer Fraud Bureau.


Two Indicted for Bank Fraud, Money Laundering

In the following press release it was announced that a 50-year-old Andover man and a 55-year-old Minnetonka man were both indicted this week in federal court on 21 counts of bank fraud and other charges.Eric R. Krahnke and Michael I. Striker were each charged Aug. 19 in Minneapolis on the 21 counts, as well as one count of conspiracy to commit bank fraud and one count of money laundering.

Their indictment alleges that from March 5, 2003, to Oct. 31, 2003, Krahnke and Striker knowingly and willfully conspired with each other to execute and attempt to execute a scheme to defraud and to obtain moneys, funds, credits, assets, securities and other property from a financial institution by means of false and fraudulent pretenses.

The object of the conspiracy, the indictment alleges, was to defraud Associated Bank and to obtain money in the form of residential real estate loans that generated cash back to Striker, and concealed fees and commissions to Krahnke.

Krahnke was a construction loan officer at Associated Bank, and was also the owner of an independent mortgage brokerage company called Worldwide Mortgage & Investments. Striker was an Associated Bank customer of Krahnke’s, and was the owner of a real estate company called U.S. Equities of Minnesota.

The indictment alleges that Striker submitted at least 21 real estate loan applications to Krahnke, which were processed, accepted and disbursed in the aggregate amount in excess of $4 million. Striker obtained more than $724,000 at closing on the loans.

In connection with the loan applications, Striker submitted false and misleading information that overstated his and U.S. Equities’ financial condition. The indictment also alleges that Striker caused to be submitted, and Krahnke knowingly accepted, inflated appraisals for the underlying properties that were above their true market value. The inflated appraisals resulted in higher gross loan amounts, which allowed the defendants to obtain money.

Krahnke, the indictment alleges, manipulated the bank’s internal loan approval process and marked loans as approved when they were not. Krahnke also allowed Striker to receive 100 percent of each loan amount in a single distribution, instead of the standard practice for a construction loan in which the borrower receives installment payments.

Although the loans were represented to be for the purpose of construction financing, Striker, the indictment alleges, did little, if any, of the rehab construction work he said he was going to do, and instead used the funds for payment of other expenses and debts unrelated to the purchased properties, including debts that he owed on other real estate loans.

In the case of many of the loans, the properties were not vacant rehab properties, but rather were homes that financially-distressed homeowners were still living in. The homeowners had conveyed their title to Striker, or the business that Striker was working with, and thought that Striker was helping them to stay in their homes. However, Striker was falsely representing to the bank an intention to rehab and re-sell these properties.

Krahnke received commissions from the bank for originating the loans, but in addition, Striker agreed to pay, and Krahnke received, a broker fee in the amount of three percent of the net loan amount, even though the loan was not originated through a broker. This broker fee was made payable to Striker’s company, Worldwide Mortgage, and was secretly owned by Krahnke.

The indictment also alleges that Striker purchased and gave Krahnke a Rolex-brand watch worth several thousand dollars, which Krahnke knew was in violation of the bank’s code of conduct concerning bribes from a customer.

If convicted, Krahnke and Striker each face a potential maximum penalty of 30 years on each bank fraud count, 30 years on the conspiracy count and 10 years on the money laundering count. All sentences are determined by a federal district court judge.

This case is the result of an investigation by the Internal Revenue Service-Criminal Investigation Division and the Federal Bureau of Investigation, and is being prosecuted by Assistant United States Attorney William J. Otteson.

An indictment is a determination by a grand jury that there is probable cause to believe that offenses have been committed by the defendant. The defendant, of course, is presumed innocent until he or she pleads guilty or is proven guilty at trial.


Cumberland County (NC) clan charged in fraud case

In the following press release United States Attorney George E.B. Holding announced that on August 21, 2008, a Federal Grand Jury returned a Criminal Indictment on TERRI J. HART, 45; APRIL HALL, 34; THOMAS WALTER THACKER, JR., 68, all of Fayetteville, North Carolina; and SHIQUANDRA ANN BROOKS, 35, of Hope Mills, North Carolina. All have been charged with conspiracy, in violation of Title 18, United States Code, Section 371, which has a maximum penalty of up to five years imprisonment and/or a $250,000 fine followed by three years of supervised release; and wire fraud, in violation of Title 18, United States Code, Section 1343, which carries a maximum penalty of up to 30 years imprisonment and/or a $1,000,000 fine followed by five years supervised release. Additionally, HART has been charged with two counts of bankruptcy fraud, in violation of Title 18, United States Code, Sections 152(7) and (3), each which has a maximum penalty of up to five years imprisonment, a $250,000 fine and/or both, followed by three years of supervised release.

The Indictment alleges that from October 31, 2003 through July 1, 2005, HART and HALL, through Carriage Crossings, Inc., and ABC Trading, Inc., with employees of the corporations, THACKER and BROOKS and others, conspired to obtain 100% financing for people purchasing lots and mobile homes from the defendants and the corporations they represented, who would not otherwise qualify for such financing. Although the means varied between the properties sold, all sales involved inflated property values and false representations to potential lenders that either a down payment had been made by the purchaser, which in fact had not been made, or that a second mortgage was taken back by the seller for the difference between the first mortgage and the inflated value, however, this second mortgage had not actually occurred or been collected on by the seller. The defendants faxed false and fraudulent information concerning each property closing to the closing attorney, the lender, and the mortgage broker. In early 2004, HART, as an agent for Carriage Crossings, Inc., filed for bankruptcy. Omitted from the bankruptcy filings was at least one executory contract and the existence of bank accounts.

Mr. Holding commented on the importance of this case: “The Indictment in this case reflects a scheme to take advantage of some vulnerable citizens–Those whose ability to purchase and maintain a home is slim. Here, we believe these defendants prayed upon these buyers and “sold” them something that was, in fact, too good to be true.”

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty in court.Investigation of the case was conducted by the Federal Bureau of Investigation, the North Carolina State Bureau of Investigation, and the United States Attorney’s Office for the Eastern District of North Carolina.