Michael Morawski, 53, Sleepy Hollow, Illinois, and Frank Constant, 57, West Dundee, Illinois, two businessmen who operated a defunct northwest suburban real estate investment company, were charged with engaging in an alleged investment fraud scheme that obtained more than $16 million from more than 300 investors. The defendants were each charged with one count of mail fraud and one count of wire fraud in a criminal complaint.
The defendants, who operated Michael Franks LLC, and several related business entities in Palatine, Illinois, allegedly misused money they raised from investors for their own benefit and to make Ponzi-type payments to earlier investors.
Morawski and Constant are scheduled to voluntarily appear before U.S. Magistrate Judge Sheila Finnegan in U.S. District Court.
According to the charges, Michael Franks offered investors passive ownership in multi-family residential properties, including apartment building complexes located in Illinois, Texas and Alabama. Morawski and Constant offered two types of investments to the public: in one, they represented that investors' funds would be used to acquire, improve and operate specific apartment complexes for a period of three to five years, and for the most part, investors were told they would earn between seven and nine percent annually, and potentially more upon the sale of the property; in the second, they offered real estate-based "funds" to investors, which were executed using promissory notes, and often offered an annual interest payment of between 8 and 30 percent per year to investors. Through these purported investments, the defendants raised more than $16 million from more than 300 investors between 2006 and 2010.
The charges allege Morawski and Constant, through Michael Franks, engaged in a scheme to defraud investors about the nature of their investments and their use of investor funds. It alleges that they engaged in a Ponzi-scheme by continually using funds raised from new investors to pay purported returns to earlier investors, all of which they concealed from both new and earlier investors.
In November 2010, Morawski and Constant turned over Michael Franks, its real estate projects and investment funds to a company called Commercial Recovery Assets to act as a private trustee/receiver. Since then, federal agents learned that many of the real estate properties have gone into foreclosure and the secured lending banks will likely take possession of the properties and any proceeds, leaving investors to lose much, if not all, of the principal they invested in Michael Franks.
The charges allege that certain real estate projects undertaken by Michael Franks performed poorly and failed to generate enough revenue to meet operating expenses. The defendants began transferring funds from various investments to support poorly-performing projects and to pay earlier investors with funds raised from new investors, without disclosing this information, the charges add. At the same time, they allegedly misused investor funds to pay employees, to make commission payments to individuals who raised new funds, and to pay themselves, as well as to make payments for Constant's company car, country club payments, and to extend loans to certain friends of Morawski.
Each count of mail fraud and wire fraud carries a maximum penalty of 20 years in prison and a $250,000 fine, and restitution is mandatory. The Court may also impose a fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater. If convicted, however, the Court must impose a reasonable sentence under the advisory United States Sentencing Guidelines.
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 announced the charges.
Monday, May 16, 2011
Saturday, May 14, 2011
Banker Robert Randal Jones gets 10 years in prison
Robert Randal Jones, 50, Cornelia, Georgia, was sentenced by United States District Judge William C. O'Kelley to serve 10 years in federal prison for orchestrating a conspiracy to defraud Community Bank & Trust ("CB&T"). Three other co-defendants were also sentenced for their participation in the scheme.
Jones was sentenced to 10 years in federal prison to be followed by 5 years of supervised release. Jones was ordered to pay restitution in the amount of $5,907,031. Jones was also ordered to perform 1000 hours of community service following his release from prison. Jones was remanded to federal custody immediately after the sentencing hearing.
Joseph C. Penick, Jr., 51, Cornelia, Georgia, was sentenced to 2 years in federal prison, to be followed by 5 years of supervised release, ordered to pay $2,058,252 in restitution, and ordered to perform 600 hours of community service.
Douglas C. Emig, 55, Clarkesville, Georgia, was sentenced to 3 years in federal prison to be followed by 5 years of supervised release, ordered to pay $2,786,948 in restitution, and also ordered to perform 600 hours of community service.
Berrong Moulton, 46, of Cleveland, Georgia, was sentenced to 2 years, 6 months in federal prison, to be followed by 5 years of supervised release, ordered to pay $2,373,086 in restitution, and also ordered to perform 600 hours of community service.
According to the information presented in court: From February 2005 through May 2009, while Jones was CB&T's Executive Vice-President and Chief Credit Officer, he conspired to commit bank fraud with some of CB&T's customers, including Penick, Emig, Moulton.
In June 2005, Penick obtained a loan for approximately $500,000 from CB&T to finance his purchase of 54 acres of land in Hart County, Georgia. Jones approved this loan on behalf of CB&T. A month later, Jones arranged for Penick to sell the 54 acres to Emig for more than $1.6 million (resulting in a profit to Penick of more than 300%). Jones also approved a loan related to this purchase on behalf of CB&T. Out of his share of the profits from the sale of the 54 acres, Penick paid a kickback to Jones of more than $400,000 and paid a kickback to Emig of $270,000.
In August 2005, Penick obtained a loan for approximately $672,000 from CB&T to finance his purchase of another 98 acres of land in Hart County, Georgia. Jones approved this loan on behalf of CB&T. Eight days later, Jones arranged for Penick to sell the 98 acres to Emig for approximately $1.6 million, resulting in a profit to Penick of more than 240%. Jones also approved a loan to Emig to make this purchase on behalf of CB&T. Out of his share of the profits from the sale of the 98 acres, Penick paid a kickback to Jones of more than $371,000 and paid a kickback to Emig of $200,000.
In addition, Moulton, a real estate developer and home builder, owed millions of dollars to CB&T on various personal and business loans, which he could not afford to repay. In an effort to prevent bank regulators from discovering how much money Moulton had borrowed from CB&T, and in order to provide Moulton with the funds he needed to pay the interest on his past-due loans at CB&T, Jones and Moulton caused CB&T to make fraudulent loans to straw borrowers for Moulton's use and benefit. These loans were made in the names of Moulton's mother, wife, and daughter, as well as a fictitious entity called "ABK Designs." The total principal amount of these fraudulent loans was approximately $2.8 million. Moulton's mother, wife, and daughter had no knowledge of the fraudulent loans and did not benefit from them in any way. Moulton used the proceeds of the fraudulent loans to make payments on his past-due loans at CB&T.
The evidence also showed that Jones fraudulently obtained more than $800,000 from CB&T through a series of fraudulent loans that he set up in the names of various members of his own family, without their knowledge or consent. Jones forged the signatures of the people in whose names he obtained these loans and then used the loan proceeds for his own personal purposes.
All of the defendants were ordered to forfeit any and all fraud proceeds they obtained as a result of their offenses. Jones forfeited his entire interest in, among other things, the franchise rights to six "Zaxby's" restaurants, eleven real properties, two certificates of deposit, three investment accounts, and approximately $150,000 in jewelry.
Penick and Emig pleaded guilty on August 27, 2010, to a Criminal Information charging one count of conspiracy to commit bank fraud. Moulton pleaded guilty on September 30, 2010, to a Criminal Information charging one count of conspiracy to commit bank fraud. Jones pleaded guilty on January 20, 2011, to a Criminal Information charging one count of conspiracy to commit bank fraud.
Jones was sentenced to 10 years in federal prison to be followed by 5 years of supervised release. Jones was ordered to pay restitution in the amount of $5,907,031. Jones was also ordered to perform 1000 hours of community service following his release from prison. Jones was remanded to federal custody immediately after the sentencing hearing.
Joseph C. Penick, Jr., 51, Cornelia, Georgia, was sentenced to 2 years in federal prison, to be followed by 5 years of supervised release, ordered to pay $2,058,252 in restitution, and ordered to perform 600 hours of community service.
Douglas C. Emig, 55, Clarkesville, Georgia, was sentenced to 3 years in federal prison to be followed by 5 years of supervised release, ordered to pay $2,786,948 in restitution, and also ordered to perform 600 hours of community service.
Berrong Moulton, 46, of Cleveland, Georgia, was sentenced to 2 years, 6 months in federal prison, to be followed by 5 years of supervised release, ordered to pay $2,373,086 in restitution, and also ordered to perform 600 hours of community service.
According to the information presented in court: From February 2005 through May 2009, while Jones was CB&T's Executive Vice-President and Chief Credit Officer, he conspired to commit bank fraud with some of CB&T's customers, including Penick, Emig, Moulton.
In June 2005, Penick obtained a loan for approximately $500,000 from CB&T to finance his purchase of 54 acres of land in Hart County, Georgia. Jones approved this loan on behalf of CB&T. A month later, Jones arranged for Penick to sell the 54 acres to Emig for more than $1.6 million (resulting in a profit to Penick of more than 300%). Jones also approved a loan related to this purchase on behalf of CB&T. Out of his share of the profits from the sale of the 54 acres, Penick paid a kickback to Jones of more than $400,000 and paid a kickback to Emig of $270,000.
In August 2005, Penick obtained a loan for approximately $672,000 from CB&T to finance his purchase of another 98 acres of land in Hart County, Georgia. Jones approved this loan on behalf of CB&T. Eight days later, Jones arranged for Penick to sell the 98 acres to Emig for approximately $1.6 million, resulting in a profit to Penick of more than 240%. Jones also approved a loan to Emig to make this purchase on behalf of CB&T. Out of his share of the profits from the sale of the 98 acres, Penick paid a kickback to Jones of more than $371,000 and paid a kickback to Emig of $200,000.
In addition, Moulton, a real estate developer and home builder, owed millions of dollars to CB&T on various personal and business loans, which he could not afford to repay. In an effort to prevent bank regulators from discovering how much money Moulton had borrowed from CB&T, and in order to provide Moulton with the funds he needed to pay the interest on his past-due loans at CB&T, Jones and Moulton caused CB&T to make fraudulent loans to straw borrowers for Moulton's use and benefit. These loans were made in the names of Moulton's mother, wife, and daughter, as well as a fictitious entity called "ABK Designs." The total principal amount of these fraudulent loans was approximately $2.8 million. Moulton's mother, wife, and daughter had no knowledge of the fraudulent loans and did not benefit from them in any way. Moulton used the proceeds of the fraudulent loans to make payments on his past-due loans at CB&T.
The evidence also showed that Jones fraudulently obtained more than $800,000 from CB&T through a series of fraudulent loans that he set up in the names of various members of his own family, without their knowledge or consent. Jones forged the signatures of the people in whose names he obtained these loans and then used the loan proceeds for his own personal purposes.
All of the defendants were ordered to forfeit any and all fraud proceeds they obtained as a result of their offenses. Jones forfeited his entire interest in, among other things, the franchise rights to six "Zaxby's" restaurants, eleven real properties, two certificates of deposit, three investment accounts, and approximately $150,000 in jewelry.
Penick and Emig pleaded guilty on August 27, 2010, to a Criminal Information charging one count of conspiracy to commit bank fraud. Moulton pleaded guilty on September 30, 2010, to a Criminal Information charging one count of conspiracy to commit bank fraud. Jones pleaded guilty on January 20, 2011, to a Criminal Information charging one count of conspiracy to commit bank fraud.
Tuesday, May 10, 2011
Banker sentenced for mortgage fraud
Jeffrey L. Levine, 70, Atlanta, Georgia, was sentenced by United States District Judge J. Owen Forrester to serve 5 years in federal prison on charges of causing materially false entries that overvalued bank assets to be made in the books, reports, and statements of Omni National Bank.
Levine was sentenced to 5 years in prison to be followed by 5 years of supervised release, and ordered to pay restitution in the amount of $6,761,791. Levine pleaded guilty to the charges on January 14, 2010.
As previously reported by Mortgage Fraud Blog, and according to the charges and other information presented in court: Levine was Executive Vice-President, the second largest bank shareholder, and head of the Community Redevelopment Lending Department at Omni National Bank from 2000 through October 12, 2007. To keep non-performing loans current on paper, Levine and others at Omni failed to disclose many exceptions to their policies and procedures which resulted in Omni being exposed to a greater risk of loss. Practices that went unreported included: diversion of loan proceeds escrowed for rehab; excessive credit concentrations to a single borrower; funding additional loans for Omni foreclosures at ever-increasing amounts; and failing to create sufficient reserves for those questionable loans or to properly record them on Omni's books and records.
Before takeover by the FDIC on March 27, 2009, Omni was headquartered in Atlanta with branch offices in Birmingham, Tampa, Chicago, Fayetteville, N.C., Houston, Dallas and Philadelphia. Omni borrowed federal funds at low rates to make high-interest, short-term loans through Levine's Community Redevelopment Department to borrowers with less than stellar credit and often no steady employment or formal education. Such Omni borrowers were supposed to purchase and rehab distressed properties for prompt resale or Section 8 rental in run-down, inner-city neighborhoods. Borrowers were expected to do most of the rehab themselves within a few months of the loan, and qualify for a loan to purchase a second property only when the first property was sold or ready for sale. Omni, its regulators and investors relied on the expected increased value of the property after rehab to be well in excess of the loan amount. The Redevelopment Department generated a significant portion of the Omni profits reported on its books and reports, although the facts now show that those profits were materially overstated.
Levine and others were well aware that none of the foreclosed properties could be sold on the open market for the amount of the outstanding Omni loans. A number of foreclosures were never disclosed on the Omni books as required, and some properties were resold up to five times at ever-increasing amounts. The actions of Levine and others at Omni resulted in an overvaluation of bank assets, which in turn misled Omni's outside auditors, its Office of the Comptroller of the Currency regulator, its FDIC insurer, the Securities and Exchange Commission, and Omni shareholders. Such practices contributed to the over 500 foreclosures and an additional 500 non-performing loans, which resulted in at least $7 million in losses to the FDIC.
The evidence showed that the HUD Section 8 Program and its tenants also suffered, because many of the Omni-funded distressed properties were not rehabbed, but rather stood vacant or were inhabited by squatters for years, corrupting other Section 8 properties and the community. Even if rented, the frequent Omni foreclosures resulted in unstable housing for Section 8 tenants, as well as increased crimes resulting from the vacant properties and transient tenants.
Additional Omni-related prosecutions to date include:
Delroy Oliver Davy, 38, Lithonia, Georgia, pleaded guilty on May 11, 2010, to bank fraud and conspiracy to commit bank, mail and wire fraud, in connection with a scheme to fraudulently obtain millions of dollars of mortgage loans from Omni and other lenders. Davy was sentenced by Judge Forrester to serve 14 years in prison.
Karim Walthour Lawrence, 33, Atlanta, Georgia, pleaded guilty on January 5, 2011, to accepting bribes from contractors he selected to rehab Omni foreclosed properties while he was an officer of Omni. He will be sentenced before United States District Judge Willis B. Hunt, Jr. A sentencing date has not yet been set by the court.
Christopher Bernard Loving, 33, McDonough, Georgia, was sentenced on August 24, 2010, to 3 years probation for making false statements to agents of the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and the FDIC in connection with an investigation of kickbacks he paid Omni officer Karim Lawrence for construction contracts.
Brent Merriell, 39, Atlanta, Georgia, was sentenced on August 3, 2010, to over 3 years in prison for making false statements to the FDIC regarding short-sales of Omni-funded properties and aggravated identity theft. Merriel's conviction resulted from a SIGTARP/FDIC sting operation.
Levine was sentenced to 5 years in prison to be followed by 5 years of supervised release, and ordered to pay restitution in the amount of $6,761,791. Levine pleaded guilty to the charges on January 14, 2010.
As previously reported by Mortgage Fraud Blog, and according to the charges and other information presented in court: Levine was Executive Vice-President, the second largest bank shareholder, and head of the Community Redevelopment Lending Department at Omni National Bank from 2000 through October 12, 2007. To keep non-performing loans current on paper, Levine and others at Omni failed to disclose many exceptions to their policies and procedures which resulted in Omni being exposed to a greater risk of loss. Practices that went unreported included: diversion of loan proceeds escrowed for rehab; excessive credit concentrations to a single borrower; funding additional loans for Omni foreclosures at ever-increasing amounts; and failing to create sufficient reserves for those questionable loans or to properly record them on Omni's books and records.
Before takeover by the FDIC on March 27, 2009, Omni was headquartered in Atlanta with branch offices in Birmingham, Tampa, Chicago, Fayetteville, N.C., Houston, Dallas and Philadelphia. Omni borrowed federal funds at low rates to make high-interest, short-term loans through Levine's Community Redevelopment Department to borrowers with less than stellar credit and often no steady employment or formal education. Such Omni borrowers were supposed to purchase and rehab distressed properties for prompt resale or Section 8 rental in run-down, inner-city neighborhoods. Borrowers were expected to do most of the rehab themselves within a few months of the loan, and qualify for a loan to purchase a second property only when the first property was sold or ready for sale. Omni, its regulators and investors relied on the expected increased value of the property after rehab to be well in excess of the loan amount. The Redevelopment Department generated a significant portion of the Omni profits reported on its books and reports, although the facts now show that those profits were materially overstated.
Levine and others were well aware that none of the foreclosed properties could be sold on the open market for the amount of the outstanding Omni loans. A number of foreclosures were never disclosed on the Omni books as required, and some properties were resold up to five times at ever-increasing amounts. The actions of Levine and others at Omni resulted in an overvaluation of bank assets, which in turn misled Omni's outside auditors, its Office of the Comptroller of the Currency regulator, its FDIC insurer, the Securities and Exchange Commission, and Omni shareholders. Such practices contributed to the over 500 foreclosures and an additional 500 non-performing loans, which resulted in at least $7 million in losses to the FDIC.
The evidence showed that the HUD Section 8 Program and its tenants also suffered, because many of the Omni-funded distressed properties were not rehabbed, but rather stood vacant or were inhabited by squatters for years, corrupting other Section 8 properties and the community. Even if rented, the frequent Omni foreclosures resulted in unstable housing for Section 8 tenants, as well as increased crimes resulting from the vacant properties and transient tenants.
Additional Omni-related prosecutions to date include:
Delroy Oliver Davy, 38, Lithonia, Georgia, pleaded guilty on May 11, 2010, to bank fraud and conspiracy to commit bank, mail and wire fraud, in connection with a scheme to fraudulently obtain millions of dollars of mortgage loans from Omni and other lenders. Davy was sentenced by Judge Forrester to serve 14 years in prison.
Karim Walthour Lawrence, 33, Atlanta, Georgia, pleaded guilty on January 5, 2011, to accepting bribes from contractors he selected to rehab Omni foreclosed properties while he was an officer of Omni. He will be sentenced before United States District Judge Willis B. Hunt, Jr. A sentencing date has not yet been set by the court.
Christopher Bernard Loving, 33, McDonough, Georgia, was sentenced on August 24, 2010, to 3 years probation for making false statements to agents of the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and the FDIC in connection with an investigation of kickbacks he paid Omni officer Karim Lawrence for construction contracts.
Brent Merriell, 39, Atlanta, Georgia, was sentenced on August 3, 2010, to over 3 years in prison for making false statements to the FDIC regarding short-sales of Omni-funded properties and aggravated identity theft. Merriel's conviction resulted from a SIGTARP/FDIC sting operation.
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