Mortgage Fraud: 02-26-09 Manpreet Singh, Sentenced

SACRAMENTO, Calif.—Acting United States Attorney Lawrence G. Brown announced today that United States District Judge William B. Shubb Jr. sentenced MANPREET SINGH, 25, of Stockton, Calif., to six months of home detention and five years’ probation for mail fraud for her part in a mortgage fraud scheme. As a special term of probation, she was ordered to pay $1,000 a month in restitution to the victim of her mortgage fraud scam. And she was also ordered to pay $163,500 in restitution. She pleaded guilty on March 31, 2008.

This case is the product of an extensive investigation by the Federal Bureau of Investigation and the Internal Revenue Service, Criminal Investigation.

According to Assistant United States Attorney Kyle, who prosecuted the case along with Assistant United States Attorney Courtney Linn, SINGH purchased two homes as a straw buyer for IFTHIKAR AHMAD, a co-defendant in the case. Straw buyers are loan applicants who purchase homes on behalf of others with no intention of actually occupying the property they are purchasing. In exchange for the use of their name and credit information, straw buyers are often compensated. In this case, SINGH received $15,000 from Ahmad for her role in signing falsified loan documents. In the first transaction, SINGH stated that she earned more than $5,500 per month. In the second, SINGH stated that she earned $8,500. In truth, SINGH worked at Alfalfa’s Pizza in Stockton and made approximately $8 an hour. As a result of her fraudulent transactions, the homes purchased with SINGH as the straw buyer were foreclosed on, causing a loss to the lender of $163,500.

Judge Shubb, in sentencing the defendant, said that SINGH got herself involved in something where the only possible outcome was to end up in federal court. Judge Shubb told the defendant to remember that, even though she was involved in a serious crime that deprived people of money, she “got a break.”

Fraud: 02-19-09 Robert Stanford $9B Scheme

SEC Alleges Stanford Fraud Involved Total $9.2 Billion – Analysis and Discussion with Frank Razzano of Pepper Hamilton; According to ABC, FBI Probes Stanford Ties to Mexico’s Gulf Cartel – Bloomberg

TARP: 02-11-09 FBI strained by fraud probes

Cheating with no recession; cheating with a recession! Find the original article here.

WASHINGTON (Reuters) — The FBI is investigating 38 cases of corporate fraud or financial institution wrongdoing tied to the economic crisis, and the federal bailout watchdog has already opened several criminal probes, officials told Congress Wednesday.

U.S. officials also said in testimony prepared for a Senate hearing that fraud cases were straining resources for investigating white-collar crime, and that the U.S. Justice Department backs proposed legislation to tighten financial-fraud laws.

Neil Barofsky, special inspector general for the $700 billion U.S. Troubled Asset Relief Program, or TARP, told the Senate Judiciary Committee that several criminal investigations related to the program were already under way.

Fraud: 02-11-09 John Pistole, Senate Judiciary Committee

	John S. Pistole Deputy Director Federal Bureau of Investigation Statement Before the Senate Judiciary Committee February 11, 2009
Good morning Mr. Chairman and Members of the Committee. I want to thank you for the opportunity to testify before you today about the Federal Bureau of Investigation’s (FBI) efforts to combat mortgage fraud and other financial frauds. Much the same as the Savings and Loan (S&L) crisis of the 1980s crippled our economy, so too has the current financial crisis. Many of the lessons learned and best practices from our work during the past decade, such as the Enron investigation, will clearly help us navigate the expansive crime problem currently taxing law enforcement and regulatory authorities. In the late 1980s and early 1990s, the United States experienced a similar financial crisis with the collapse of the savings and loans. The Department of Justice (DOJ), and more specifically the FBI, were provided a number of tools through the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and Crime Control Act of 1990 (CCA) to combat the aforementioned crisis. As stated in Senate Bill 331 dated January 27, 2009, “in the wake of the Savings and Loan crisis of the 1980s, a series of strike forces based in 27 cities was staffed with 1000 FBI agents and forensic experts and dozens of federal prosecutors. That effort yielded more than 600 convictions and $130,000,000 in ordered restitution.” However, today’s financial crisis dwarves the S&L crisis as financial institutions have reduced their assets by more than $1 trillion related to the current global financial crisis compared to the estimated $160 million lost during the S&L crisis. Mortgage and related corporate fraud were not the sole sources of the current financial crisis; however, it would be irresponsible to neglect mortgage fraud’s impact on the U.S. housing and financial markets. As former FBI Assistant Director Chris Swecker testified in 2004 before the House Financial Services Subcommittee: “If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market. Investors may lose faith and require higher returns from mortgage backed securities. This may result in higher interest rates and fees paid by borrowers and limit the amount of investment funds available for mortgage loans.” He also noted that the FBI supported new approaches to address mortgage fraud and its effects on the U.S. financial system, to include: a mechanism to require the mortgage industry to report fraudulent activity, and the creation of “ Safe Harbor” provisions to protect the mortgage industry under a mandatory reporting mechanism. What has occurred has been far worse than Assistant Director Swecker predicted. Mortgage fraud and related financial industry corporate fraud have shaken the world’s confidence in the U.S. financial system. The fraud schemes have adapted with the changing economy and now individuals are preyed upon even as they are about to lose their homes. But what is mortgage fraud? Although there is no specific statute that defines mortgage fraud, each mortgage fraud scheme contains some type of material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan. The FBI delineates mortgage fraud in two distinct areas: 1) Fraud for Profit; and 2) Fraud for Housing. Fraud for Profit uses a scheme to remove equity, falsely inflate the value of the property or issue loans relating to fictitious property(ies). Many of the Fraud for Profit schemes rely on “industry insiders”, who override lender controls. The FBI defines industry insiders as appraisers, accountants, attorneys, real estate brokers, mortgage underwriters and processors, settlement/title company employees, mortgage brokers, loan originators, and other mortgage professionals engaged in the mortgage industry. Fraud for Housing represents illegal actions perpetrated by a borrower, typically with the assistance of real estate professionals. The simple motive behind this fraud is to acquire and maintain ownership of a house under false pretenses. This type of fraud is typified by a borrower who makes misrepresentations regarding the borrower’s income or employment history to qualify for a loan. The FBI compiles data on mortgage fraud through Suspicious Activity Reports (SARs) filed by financial institutions and through the Department of Housing and Urban Development (HUD) Office of Inspector General (OIG) reports. The FBI also receives complaints from the industry at large. While a significant portion of the mortgage industry is void of any mandatory fraud reporting and there is presently no central repository to collect all mortgage fraud complaints, SARs from financial institutions have indicated a significant increase in mortgage fraud reporting. For example, during Fiscal Year (FY) 2008, mortgage fraud SARs increased more than 36 percent to 63,173. The total dollar loss attributed to mortgage fraud is unknown. However, 7 percent of SARs filed during FY 2008 indicated a specific dollar loss, which totaled more than $1.5 billion. Only 7 percent of SARs report dollar loss because of the time lag between identifying a suspicious loan and liquidating the property through foreclosure and then calculating the loss amount. One proposal informally discussed within the FBI is the creation of a mandatory reporting mechanism (beyond the current SAR requirements, which only depository institutions are required to file) to allow industry insiders to be the front line in preventing mortgage fraud. Zero tolerance within the industry combined with a mandatory system of reporting fraudulent activities to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and made available to the FBI and HUD would be a major step forward in addressing the practice of mortgage fraud. Based on current and past investigations, the FBI has recognized that the financial industry is susceptible to a number of vulnerabilities through industry insiders and other individuals involved in loan and finance transactions. However, the FBI recognizes that the term “industry insiders” can be interpreted very broadly, and many mortgage finance-related entities are either loosely or completely unregulated at the state or federal level. FBI would like to work with FinCEN to expand the exercise of their statutory authority under the Bank Secrecy Act (BSA) to consider the implementation of SAR and anti-money laundering program requirements on some of the businesses and professions that currently fall outside the scope of SAR reporting. A vigilant industry combined with this reporting stream, when made available to the FBI and HUD, would be a major step forward in addressing the practice of mortgage fraud. Fraud Trends The current financial crisis has produced one unexpected consequence: it has exposed prevalent fraud schemes that have been thriving in the global financial system. These fraud schemes are not new but they are coming to light as a result of market deterioration. For example, current market conditions have helped reveal numerous mortgage fraud, Ponzi schemes, and investment frauds, such as the Bernard Madoff alleged scam. These schemes highlight the need for law enforcement and regulatory agencies to be ever vigilant of white collar crime both in boom and bust years. The FBI has experienced and continues to experience an exponential rise in mortgage fraud investigations. The number of open FBI mortgage fraud investigations has risen from 881 in FY 2006 to more than 1,600 in FY 2008. In addition, the FBI has more than 530 open corporate fraud investigations, including 38 corporate fraud and financial institution matters directly related to the current financial crisis. These corporate and financial institution failure investigations involve financial statement manipulation, accounting fraud and insider trading. The increasing mortgage, corporate fraud, and financial institution failure case inventory is straining the FBI’s limited White Collar Crime resources. Although there are many mortgage fraud schemes, the FBI is focusing its efforts on those perpetrated by industry insiders who are part of organized enterprises engaged in mortgage Fraud for Profit. Industry insiders are of priority concern as they are, in many instances, the facilitators that permit the fraud to occur. The FBI utilizes SAR data to help identify fraud schemes perpetrated by insiders. However, SAR data does not capture suspicious activity identified by the entire mortgage industry. Requiring the entire industry to report suspicious activity would give us a more complete data set to exploit. The FBI is engaged with the mortgage industry in identifying fraud trends and educating the public. Some of the current rising mortgage fraud trends include: equity skimming, property flipping, mortgage identity-related theft, and foreclosure rescue scams. Equity skimming is a tried and true method of committing mortgage fraud and criminals continue to devise new schemes. Today’s common equity skimming schemes involve the use of corporate shell companies, corporate identity theft and the use or threat of bankruptcy/foreclosure to dupe homeowners and investors. Property flipping is nothing new; however, once again law enforcement is faced with an educated criminal element that is using identity theft, straw borrowers and shell companies, along with industry insiders to conceal their methods and override lender controls. Identity theft in its many forms is a growing problem and is manifested in many ways, including mortgage documents. The mortgage industry has indicated that personal, corporate, and professional identity theft in the mortgage industry is on the rise. Computer technology advances and the use of online sources have also assisted the criminal in committing mortgage fraud. However, the FBI is working with its law enforcement and industry partners to identify trends and develop techniques to thwart illegal activities in this arena. Foreclosure rescue scams are particularly egregious in that fraudsters take advantage and illegally profit from other individuals’ misfortunes. As foreclosures continue to rise across the country, so too have the number of foreclosure rescue scams that target unsuspecting victims. These scams include victims losing their home equity or paying thousands of dollars in fees, and then receiving little or no services, and ultimately losing their home to foreclosure. The FBI is again working with our law enforcement and regulatory partners along with industry partners to target, disrupt, and dismantle the individuals and/or companies engaging in these fraud schemes. Proactive Approach to Financial Frauds The FBI has implemented new and innovative methods to detect and combat mortgage fraud. One of these proactive approaches was the development of a property flipping analytical computer application, first developed by the Washington Field Office, to effectively identify property flipping in the Baltimore and Washington areas. The original concept has evolved into a national FBI initiative which employs statistical correlations and other advanced computer technology to search for companies and persons with patterns of property flipping. As potential targets are analyzed and flagged, the information is provided to the respective FBI field office for further investigation. Property flipping is best described as purchasing properties and artificially inflating their value through false appraisals. The artificially valued properties are then sold at a higher price to an associate of the “flipper” at a substantially inflated price. Often, flipped properties go into foreclosure and are ultimately repurchased for a fraction of their original value. Other methods employed by the FBI include sophisticated investigative techniques, such as undercover operations and wiretaps. These investigative measures not only result in the collection of valuable evidence, they also provide an opportunity to apprehend criminals in the commission of their crimes, thus reducing loss to individuals and financial institutions. By pursuing these proactive methods in conjunction with historical investigations, the FBI is able to realize operational efficiencies in large scale investigations. In December 2008, the FBI dedicated resources to create the National Mortgage Fraud Team at FBI Headquarters in Washington, D.C. The team has the specific responsibility for all management of the mortgage fraud program at both the origination and corporate level. This team will be assisting the field offices in addressing the mortgage fraud problem at all levels. The current financial crisis, however, has required the FBI to move resources from other white collar crime and criminal programs in order to appropriately address the crime problem. Since January 2007, the FBI has increased its agent and analyst manpower working mortgage fraud investigations. The team provides tools to identify the most egregious mortgage fraud perpetrators, prioritize pending investigations, and provide information to evaluate where additional manpower is needed. Partnerships One of the best tools the FBI has in its arsenal for combating mortgage fraud is its long-standing partnerships with other federal, state, and local law enforcement. This is not a new tool employed by the FBI. Collaboration, communication, and information-sharing have long been a proven solution to the nation’s most difficult crimes. In response to a growing gang problem, for example, the FBI stood up Safe Streets Task Forces across the country. In response to crimes in Indian Country, the FBI developed the Safe Trails Task Force Program. In response to this new threat, the FBI stood up Mortgage Fraud Task Forces across the country. Presently, there are 16 mortgage fraud task forces and 39 working groups in the country. With representatives of federal, state, and local law enforcement, these task forces are strategically placed in areas identified as high threat areas for mortgage fraud. Partners are varied but typically include representatives of HUD-OIG, the U.S. Postal Inspection Service, the Internal Revenue Service, FinCEN, the Federal Deposit Insurance Corporation, as well as state and local law enforcement officers across the country. While the FBI has increased the number of agents around the country who investigate mortgage fraud cases from 120 special agents in FY 2007 to 180 special agents in FY 2008, this multi-agency model serves as a force-multiplier, providing an array of resources to adequately identify the source of the fraud, as well as finding the most effective way to prosecute each case, particularly in active markets where fraud is widespread. We are pleased to report that the model is working. Last June, for example, we worked closely with our partners on “Operation Malicious Mortgage”—a massive multi-agency takedown of mortgage fraud schemes involving more than 400 defendants nationwide. That operation focused primarily on three types of mortgage fraud: lending fraud, foreclosure rescue schemes, and mortgage-related bankruptcy schemes. Among the 400-plus subjects of “Operation Malicious Mortgage,” there have been 164 convictions and 81 sentencings so far for crimes that have accounted for more than $1 billion in estimated losses. Forty-six of our 56 field offices around the country took part in the operation, which has resulted in the forfeiture and/or seizure of more than $60 million in assets. In addition to the effort placed in standing-up mortgage fraud task forces, once a month the FBI is one of the DOJ participants in the national Mortgage Fraud Working Group (MFWG), which DOJ chairs. The MFWG represents the collaborative effort of multiple federal agencies and facilitates the information sharing process across the aforementioned agencies, as well as private organizations. Together, we are building on existing FBI intelligence databases to identify large industry insiders and criminal enterprises conducting systemic mortgage fraud. The FBI is also a member of the President’s Corporate Fraud Task Force, which is comprised of investigators from the Securities and Exchange Commission, the Internal Revenue Service, the U.S. Postal Inspection Service, the Commodity Futures Trading Commission, and the Financial Crimes Enforcement Network. The purpose of the Corporate Fraud Task Force is to maximize intelligence sharing between membership agencies and to ensure the violations related to corporate fraud are appropriately addressed. The FBI also participates in the Corporate/Securities Fraud Working Group, a national interagency coordinating body established by DOJ to provide a forum for exchanging information and discussing violation trends, law enforcement issues, and techniques. In addition, since April 2007, FBI Headquarters personnel have met with representatives from the Securities and Exchange Commission once a month to coordinate the respective Corporate Fraud inventories focused on the current financial crisis and to share intelligence. Industry Liaison In addition to its partners in law enforcement and regulatory areas, the FBI also continues to foster relationships with representatives of the mortgage industry to promote mortgage fraud awareness. The FBI has spoken at and participated in various mortgage industry conferences and seminars, including those sponsored by the Mortgage Bankers Association (MBA). To raise awareness of this issue and provide easy accessibility to investigative personnel, the FBI has provided contact information for all FBI Mortgage Fraud Supervisors to relevant groups including the MBA, Mortgage Asset Research Institute, Fannie Mae, Freddie Mac, and others. Additionally, the FBI is collaborating with industry to develop a more efficient mortgage fraud reporting mechanism for those not mandated to report such activity. This Suspicious Mortgage Activity Report (SMARt Form) concept is under consideration by the MBA. The FBI supports providing a “safe harbor” for lending institutions, appraisers, brokers and other mortgage professionals similar to the provisions afforded to financial institutions providing SAR information. The “ Safe Harbor” provision would provide necessary protections to the mortgage industry under a mandatory reporting mechanism. This will also better enable the FBI to provide reliable mortgage fraud information based on a more representative population in the mortgage industry. Lenders are painfully aware that fraud is affecting their bottom line. Through routine interaction with FBI personnel, industry representatives are aware of our commitment to address this crime problem. The FBI frequently participates in industry sponsored fraud deterrence seminars, conferences, and meetings which include topics such as quality control and industry best practices to detect, deter, and prevent mortgage fraud. These meetings play a significant role in training and educating industry professionals. Companies share current and common fraud trends, loan underwriting weaknesses, and best practices for fraud avoidance. These meetings also increase the interaction between industry and FBI personnel. Additionally, the FBI continues to train its personnel and conduct joint training with HUD-OIG and industry on mortgage fraud. As a training model, the FBI seeks industry experts to assist in its internal training programs. For example, industry has assisted training FBI personnel on mortgage industry practices, documentation, laws, and regulations. Industry partners have offered to assist the FBI in developing advanced mortgage fraud investigative training material and fraud detection tools. Conclusion Mr. Chairman, the FBI remains committed to its responsibility to aggressively investigate significant financial crimes which include mortgage fraud. We will continue to work with the Office of Management and Budget and the Congress to ensure that adequate resources are available to address these threats. To maximize our current resources, we are relying on intelligence collection and analysis to identify emerging trends to target the greatest threats. We also will continue to rely heavily on the strong relationships we have with both our law enforcement and regulatory agency partners. The FBI looks forward to working with you and other members of this committee on solving this serious threat to our nation’s economy. Thank you for allowing me the opportunity to testify before you today. I look forward to taking your questions.

Ponzi Scheme: 02-05-09 Scott Luster – Rate Search, Guilty

St.Scott Luster, President of Rate Search, Inc., pled guilty to fraud and tax charges involving his scheme to divert customer funds, United States Attorney Catherine L. Hanaway announced today.

According to court documents filed at the time of his plea, Rate Search, Inc. was in the business of marketing, brokering and purchasing certificates of deposit (“CDs”) at financial institutions throughout the United States with investment moneys of its customers, and operated out of several offices in the St. Louis area. Clayton Analytical Services, Inc. was a Missouri corporation established in 1998, and engaged in the business of assisting in the running of the operations of Rate Search. Clayton Analytical had business addresses in the St. Louis area.

Scott Luster, President of Rate Search, marketed and brokered CDs through Rate Search to its customers, and directed the day to day activities of Rate Search. Between January2000 and June 30, 2007, Luster and Rate Search participated in a scheme to defraud Rate Search customers of more than $4,500,000. Luster and Rate Search failed to purchase CDs for its customers, despite having received directions and funds from them to purchase CDs, and failed to advise them that their CDs had not been purchased. The customers’ money and funds were used instead for unrelated business purposes and for personal use. Additionally, Luster and Rate Search failed to “roll over” customer

CDs when requested and failed to disburse funds received by Rate Search from the non “rolled over” CDs to the Rate Search customers. These funds were also used by Luster for unrelated business purposes and for personal use.

Additionally, for the taxable years 2002 through 2006, Luster failed to report funds he received through Rate Search and other sources of approximately $807,911.

“Mr. Luster engaged in a Ponzi scheme, in which customer monies were used for purposes other than what was intended by trusting investors,” said First Assistant U.S. Attorney Michael W. Reap.

“Even though Mr. Luster will be required to pay restitution to these victims, many have lost hundreds of thousands of dollars of their retirement savings.”

“Fraud schemes such as this prey upon the trust and hopes of the investing public. In these economic times the upheaval caused to the victims is significant. The FBI and our law enforcement partners will continue to investigate those whose schemes deceive and defraud the public,” said John Gillies, Special Agent in Charge, FBI St. Louis.

Luster, 53, Belleville, IL, pled guilty to one felony count of mail fraud and one felony count of filing a false tax return. He appeared before United States District Judge E. Richard Webber.

Luster now faces a maximum penalty of 20 years in prison and/or fines up to $250,000 on the mail fraud charge; the tax charge carries a maximum penalty of three years in prison and/or fines up to $100,000. Restitution is mandatory on the mail fraud charge. Sentencing has been set for April 21, 2009.

“The Internal Revenue Code is specific, income derived from any source is subject to income tax,” said Toni Weirauch, Special Agent in Charge of IRS Criminal Investigation. “The prosecution of individuals who intentionally file false income tax returns is a vital element in maintaining public confidence in our tax system.”

Co-defendant Clark Schultz, President of Clayton Analytical Services, Inc., 42, of University City, MO, pled guilty to related charges last December and awaits sentencing on March 5, 2009. Schultz was an employee of Rate Search beginning in 1991, and incorporated Clayton Analytical in 1998.

Initially as an employee of Rate Search, and then later through Clayton Analytical, Schultz was responsible for finding the rates for the bank CDs and placing the CDs for the customers of Rate Search.

Hanaway commended the work on the case by Internal Revenue Service Criminal Investigation, the Federal Bureau of Investigation, the Postal Inspection Service; and Assistant United States Attorney Hal Goldsmith, who is handling the case for the U.S. Attorney’s Office.

Catherine L. Hanaway, U.S. Attorney
Eastern District of Missouri
Contact: (314) 539-7719

Ponzi Scheme: 01-26-09 Frank Castaldi

A suburban businessman who promised hundreds of investors between 10 and 15 percent annual interest rates on promissory notes he sold them was charged today with operating a so-called “Ponzi” scheme for more than 20 years, resulting in losses estimated in tens of millions of dollars. The defendant, Frank A. Castaldi, was charged with mail fraud in a federal criminal complaint filed today in U.S. District Court, announced Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

Castaldi, 55, of Prospect Heights , was expected to surrender voluntarily for an initial appearance at 1:30 p.m. today before Magistrate Judge Nan Nolan in U.S. District Court.

According to the complaint, during approximately the early to mid-1980s, Castaldi, his father, and a business partner started two businesses – CZ Travel and CZ Realty. They later purchased ownership interests in First State Travel Service, Inc., Parkway Towers Insurance Agency, Inc., and Cumberland Realty, Inc., which later became known as Remax Cumberland Realty, all currently located at 4501 North Cumberland in Norridge , with Castaldi identified as the president of each business.

Beginning in at least approximately 1986, Castaldi allegedly began offering and selling month promissory notes to investors, the majority of whom were people who were referred to him by other investors, and included friends, family members and customers of his businesses. While the vast majority of notes stated that the annual interest rate was zero percent, Castaldi allegedly orally guaranteed that he would pay investors annual returns between 10 and 15 percent.

Castaldi allegedly made false representations to most investors about investing their principal in his various businesses, as well as the source of the funds that he used to make their interest payments. At least five years ago, Castaldi allegedly began falsely telling investors that he was placing their money with financial institutions with whom he had a special relationship and would guarantee their principal and high returns. Instead, Castaldi obtained loans and used certain investors’ principal payments to make interest payments to other investors, without disclosing the true source of the interest payments, the charges allege.

The complaint affidavit states that there are approximately 200 to 300 investors whose principal has not yet been returned and estimates that the outstanding principal owed to these investors is in the tens of millions of dollars. In 2008 alone, Castaldi allegedly renewed or issued promissory notes bearing a total face value of approximately $68 million to $69 million, in many instances representing the face value of investors’ initial notes plus the investors’ accumulated interest which had been rolled back into the notes.

In addition to using new investors’ principal to make interest payments and return principal to earlier investors, Castaldi also lost investors’ money by funding his failed banquet hall and other failing businesses, and to purchase some stocks, the charges allege. It is believed that neither Castaldi nor his businesses have the money to pay back the investors, the complaint states.

Law enforcement authorities are currently in the process of identifying potential victims in this case. Individuals who believe they are victims but have not received information by mail by the end of February, should contact the U.S. Attorney’s Office Victim Assistance Program either by calling 1-866-364-2621 and leave a name, address and phone number, or sending an email to usailn.victim.aa@usdoj.gov and information will be mailed.

The government is being represented by Assistant U.S. Attorneys Christopher Veatch and Sunil Harjani.

If convicted, mail fraud carries a maximum penalty of 20 years in prison and a $250,000 fine.

The Court, however, would determine the appropriate sentence to be imposed under the advisory United States Sentencing Guidelines.

The public is reminded that a complaint contains only charges and is not evidence of guilt.

The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Ponzi Scheme: 01-24-09 Joseph Forte Charged for Investment Fraud

PHILADELPHIA – Acting United States Attorney Laurie Magid today announced the filing of a criminal complaint¹ against Joseph Forte, charging Forte with mail fraud. According to the affidavit, Forte was the sole general partner of an investment fund, which he used as a pyramid or “Ponzi” scheme to defraud investors of tens of millions of dollars between 1996 and 2008.

According to the affidavit, Forte has admitted to raising at least $50 million in investment capital from roughly 80 investors, including a charity, a church, and a private school. Forte told investors that he was profitably trading in S&P 500 stock index futures contracts. In quarterly “investment reports” mailed to investors, Forte consistently claimed that his trades were profitable, reporting investment returns between 18% and 38%. In fact, according to the affidavit, Forte consistently lost money on his trades and he fabricated the numbers in the investment reports to mislead his investors. In the last 10 years, Forte’s trading account suffered aggregate trading losses of $3.3 million.

The affidavit alleges that Forte only deposited about half of the investors’ money in his trading account. Forte paid himself millions of dollars in salaries and fees, and used over $15 million of investor funds to pay other investors who made redemption requests. Despite the trading account’s actual losses, Forte was able to continue raising money from new investors by falsely reporting high return rates.

“Ponzi schemes such as this exploit the trust and hopes of investors, including friends and charitable institutions,” Magid said. “In these troubled economic times the devastation caused to the victims cannot be overstated. Our office will continue to aggressively prosecute those who use the financial markets to deceive and defraud the public.”

According to the affidavit, Forte used the system of mailing quarterly investment reports as the primary method for misrepresenting his trade performance to individual investors. Via the most recent quarterly report mailed to investors on or about September 30, 2008, Forte reported that his fund had a value of $154,700,189, when in reality the value of the account was less than $150,000. The complaint alleges that on or about September 30, 2008, in order to execute his scheme, Forte caused to be mailed statements which falsely represented his trading activities, as well as the status of investments of individual investors.

“The US Postal Inspection Service is committed to protecting the public’s full confidence in the mail. Postal Inspectors are intent on preserving the integrity of the US mail through vigorous law enforcement, public education, and crime prevention efforts,” said United States Postal Inspector-in-Charge Teresa Thome, of the Philadelphia office.

“The FBI views these types of financial investment frauds as significant problems, because of the devastating effect they have not only on the individual victims who are preyed upon but also the effect they have on the overall economy,” said Special Agent-in-Charge of the Philadelphia Division of the FBI, Janice K. Fedarcyk.

If convicted, Forte faces a maximum possible sentence of 20 years imprisonment, a $250,000 fine, and the U.S. Attorney’s Office will seek full restitution for his victims, including forfeiture of any proceeds traceable to the commission of the offenses.

The case was investigated by the United States Postal Inspection Service and the Federal Bureau of Investigation, in cooperation with the Securities and Exchange Commission, the Commodities Futures Trading Commission, and the Delaware County District Attorney’s Office. It is being prosecuted by Assistant United States Attorney Joseph Khan. An complaint is an accusation. A defendant is presumed innocent unless and until proven guilty.

¹An complaint is an accusation. A defendant is presumed innocent unless and until proven guilty.

Ponzi Scheme: 01-21-09 Donald Manning, Brixon Group Guilty

United States Attorney Karen P. Hewitt announced that Donald Manning pled guilty today to conspiracy and wire fraud charges in U.S. District Court in San Diego before the Honorable Barry Ted Moskowitz. According to Assistant United States Attorneys William Cole and John Owens, who are prosecuting the case, Manning was the President of a Ponzi scheme called the “Brixon Group.” Along with coconspirators Joseph Wayne McCool and Cameron Campbell, Manning recruited retirees and members of his own family to invest millions of dollars in the Brixon Group.

Manning told investors that the Brixon Group guaranteed large, guaranteed returns and that the investments were risk free. Manning also told investors that part of their investment would go toward humanitarian efforts overseas and that co-defendant McCool was a banking expert who, prior to working with Brixon, had successfully managed a large private trust in Europe. As part of his guilty plea, Manning admitted that he and his coconspirators, in fact, intentionally concealed from investors that most of the money invested in Brixon would not be placed into investments and that new funds received from investors would be used to make payments to earlier investors. Manning further admitted that, through the Brixon scheme, he and his coconspirators converted much of the investors’ money to their own personal use.

Both the United States Attorney’s Office and the FBI acknowledged the assistance of the Arizona Corporation Commission in the investigation. Manning’s co-defendant, Cameron Campbell, previously pleaded guilty and is currently serving a 63- month sentence in federal prison. Law enforcement continues to seek the public’s assistance in locating Joseph Wayne McCool, whose whereabouts are currently unknown. Sentencing for Manning is scheduled for April 15, 2009 at 10:30 a.m., before Judge Moskowitz.

DEFENDANT Case No. 06-CR-1021-BTM
Donald Manning

SUMMARY OF CHARGES
One Count – Title 18, United States Code, Section 371 – Conspiracy to Commit Offenses Against the U.S.
Maximum penalties: 5 years in prison, $250,000 fine, and restitution.
One Count – Title 18, United States Code, Section 1343 – Wire Fraud
Maximum penalties: 5 years in prison, $250,000 fine, and restitution.

PARTICIPATING AGENCIES
Federal Bureau of Investigation
Arizona Corporation Commission

Fraud: 12-17-08 William Raymond Miller guility

Jacksonville, Florida – United State Attorney A. Brian Albritton today announced that William Raymond Miller, a 37-year-old resident of Clarksville, Maryland, pleaded guilty to mail fraud and wire fraud charges in connection with a surety bond insurance fraud scheme Miller engaged in from 2005 through April 2008. Miller faces up to 40 years’ imprisonment, a $500,000 fine, and a six-year term of supervised release.

According to the plea agreement, Miller used several businesses to sell fraudulent surety bonds on construction projects throughout the United States. Some of the construction projects were for United States governmental entities, including the Federal Aviation Administration, the United States Navy, and the Army Corps of Engineers. On numerous occasions, Miller made it appear that he was issuing the bonds in the names of legitimate insurers, including Fidelity National Property and Casualty Company, a division of Fidelity National Financial Incorporated, which is headquartered in Jacksonville. The plea agreement states that Miller issued surety bonds with a face value of over $535 million and received premium payments of over $22.5 million during the course of the fraud.

In the plea agreement, Miller agreed to forfeit to the United States $22.5 million, several pieces of real estate, including his residence in Maryland and a condominium in Panama City, Florida; a sports bar in Clarksville, Maryland; numerous vehicles and computer equipment seized by the Federal Bureau of Investigation (FBI) during a search of Miller’s business in March of 2008, and funds from various bank accounts also seized by the FBI.

The case was investigated by the FBI, Jacksonville Field Office, the Department of Defense Criminal Investigative Service, and the United States Army Criminal Investigation Command. The investigation was assisted by the Florida Department of Financial Services, the New York State Insurance Department, and the Maryland Insurance Administration.

The case is being prosecuted by Assistant United States Attorneys Russell C. Stoddard and Bonnie A. Glober.

Release here.

Mortgage Fraud: 12-11-08 Mohammed Rababeh & Ahmed Rababeh

Mohammed Rababeh, 29, of Vienna, Virginia, and Ahmed Rababeh, 31, of Haymarket, Virginia, were sentenced today for their roles in a conspiracy to commit bank fraud. U.S. District Judge Claude M. Hilton sentenced Mohammed Rababeh to 24 months in prison and Ahmed Rababeh to 18 months in prison. The two men had pleaded guilty on September 24, 2008, to conspiracy charges arising from a fraud scheme involving several real estate mortgage loans they and their co-conspirators obtained between April 2004 and September 2006. Dana J. Boente, Acting United States Attorney for the Eastern District of Virginia; Joseph Persichini, Jr., Assistant Director, Federal Bureau of Investigation, Washington Field Office; and C. Andre Martin, Special Agent in Charge, Internal Revenue Service, Washington Field Office, made the announcement.

According to court papers, the two men conspired with Randolph Baltimore, 50, of Leesburg, Virginia, to submit fraudulent loan applications overstating Baltimore’s income and omitting his liabilities, so that Baltimore could purchase properties the Rababehs wanted to sell. The Rababehs agreed to pay Baltimore $27,500 to serve as the buyer on four such properties. Mohammed and Ahmed Rababeh engaged in similar fraud schemes to obtain loans to buy properties in their own names, according to court papers. Mohammad Rababeh obtained more than $2 million in such loans, and the losses to the lenders could be as much as $1 million.

Baltimore pleaded guilty to the conspiracy on June 24, 2008, and was sentenced by Judge Hilton on September 26, 2008, to 12 months in prison.

The cases were investigated by Special Agents from the Federal Bureau of Investigation and the Internal Revenue Service, Criminal Investigation, and were prosecuted by Assistant United States Attorney James P. Gillis.

Release here.