California Real Estate Fraud Report

A Danville man who was indicted by a federal grand jury in December 2011 with rigging bids at real estate foreclosure auctions and mail fraud faces new charges having to do with evidence tampering.

Andrew Katakis of Danville is the recipient of a superceding indictment charging him with obstruction of justice in the federal investigation. He is now accused of convincing his co-defendants Donald Parker, Anthony Joachim and Theodore Longley to install and run software to overwrite deleted documents stored on their computers (spoliation).

Note: when computer users delete a file, it is not actually deleted, but the space in which it is located is flagged by the system as available for a new file to be written (unallocated space). The purpose of the software is to locate unallocated space and overwrite it one or more times with new data.

“Obstruction of a grand jury investigation is a crime the Antitrust Division takes seriously,” says William Baer, assistant attorney general in charge of the Department of Justice’s Antitrust Division. “We will prosecute those who subvert the competitive process, as well as those who attempt to conceal their illegal actions by destroying evidence.”

“The new charge arises out of a long-running investigation that has already resulted in guilty pleas by numerous other defendants who participated in the scheme charged in this case,” says U.S. Attorney Benjamin Wagner.

Ten defendants have already pleaded guilty in this conspiracy: Anthony B. Ghio, John R. Vanzetti, Theodore B. Hutz, Richard W. Northcutt, Yama Marifat, Gregory L. Jackson, Walter Daniel Olmstead, Robert Rose, Kenneth Swanger and Wiley Chandler.

The current investigation is being conducted jointly by the Antitrust Division’s San Francisco office, the U.S. Attorney’s Office for the Eastern District of California, the FBI’s Sacramento Division, and the San Joaquin County District Attorney’s Office.

Read the original article in the Central Valley Business Times. There are also earlier articles about this auction bid-rigging and prosecution in the California Real Estate Fraud Report.

A man who was already on home detention for a prior conviction for bank fraud has been sentenced to federal prison for 10 years for mail fraud.

U.S. District Judge Garland Burrell Jr. imposed the sentence on David Romo, 42, now formerly of Folson for operating a real estate investment fraud scheme that cost the victims over $6.9 million.

Romo was prosecuted by the office of U.S. Attorney Benjamin Wagner, who said that David Romo never disclosed to his victims-investors that he had been convicted of bank fraud in 2002 in the U.S. District Court in Sacramento. He solicited investors through his companies Sycamore Ventures LLC, Smarie Investments LLC and Groupo Immobiliare LLC. Wagner stated that Romo did not use the investors’ money for anything other than his personal use and for unrelated business expenses.

In imposing sentence on Friday, U.S. District Judge Garland Burrell Jr. noted that Mr. Romo was on home detention when he committed his current crimes.

In referring to Romo’s gall in committing new federal crimes while on federal supervised release, Judge Burrell said “This is appalling, he does not respect the law, he does not get it. It is evident the public needs protection.”

Read the original article in the Central Valley Business Times.

I love the justice system in Florida – this would NEVER happen in California.

John W. Lebron, 33, already on probation for possession with intent to sell GHB, an illegal steroid with strong sedative properties, has been sentenced to 26 years in prison for committing short sale fraud and foreclosure fraud.

Lebron, a formerly licensed real estate agent, opened a business called EZ Investments with his wife in 2005. Their first sale was consummated when John Lebron helped his sister Cynthia Lebron to buy a home that was in foreclosure. He not only collected both sides of the commission (dual agency), he got the mortgage broker’s commission after placing the name of another loan officer (loan fraud, mortgage fraud) on the paperwork to conceal his plan. Sounds like Lebron’s business model included fraud to help him achieve his goals.

Emboldened by a successful and very profitable transaction, John Lebron next set up a short sale to his brother-in-law and at the same time arranged a second sale to a straw buyer (“flopping”). Since the straw buyer happened to be unemployed, Lebron submitted phony pay stubs on behalf of the buyer. As with the previous sale to his sister, Lebron received both sides of the real estate sale from both sales as well as the commissions from the loans. The straw buyers earned $5,000 for their troubles.

John Lebron’s fortunes reversed when he defaulted on loans valued at $1.4 million. He was arrested in 2011, lost his real estate license and has been ordered by the trial judge to return $1.5 million.

Read the original article in the Tampa Bay Times.

A Congolese man who allegedly represented that he was the son of the president of the Congo and just became a U.S. citizen last month, has been accused of defrauding a Marin real estate agent and his girlfriend out of $1.6 million.

Blessed Marvelous Herve, 41, stands charged with one count of wire fraud, according to a federal criminal complaint, according to U.S. Attorney Melinda Haag.

An affidavit filed by FBI Agent Brian Weber in support of the criminal complaint states that Herve was granted asylum in the United States in 1999. Between 2006 and 2012, Herve allegedly conned the unidentified agent and his girlfriend by telling them a number of false stories, including

(1) Herve’s father was the president of the Congo and wanted to buy several multimillion-dollar homes in the Bay Area.

(2) Herve needed assistance in recovering $43 million the U.S. government had supposedly seized from him. He allegedly bled the agent financially until he was dry; then did the same to the girlfriend. The lure was millions of dollars in “bonuses.”

Are any of you asking the same question I am: why would a man who was supposedly the son of the president of the Congo need political asylum?

Read the original article in the Novato Patch.

A San Diego woman who brazenly brokered loans without possessing the necessary license has pleaded guilty to operating a a loan origination fraud scheme that included kickbacks.

According to the U.S. Attorney’s Office, Mary Armstrong, 51, wrote over $100 million in fraudulent loans (mortgage fraud, loan fraud) and skimmed $14.5 million from it (equity skimming). Armstrong confessed to selling $100 million of real estate around the country at puffed-up prices (appraisal fraud) and took the overpayments for herself. Her admitted crimes included fabricating loan applications for her straw buyers and  getting supporting fraudulent documents from her co-conspirators.

Prior to Armstrong’s guilty pleas, the following co-conspirators also pled guilty:

- Teresa Rose, a Ramona real estate agent

- Audrey Yeboah, Mary Armstrong’s accountant

- Seattle businessman Justin Mensen

Still awaiting their turn to face the scales of justice are John Allen, 44, of Laguna Hills, and William Fountain, 57, of Los Angeles.

Prosecutors said that the straw buyers were recruited in Southern California and other states by the defendants advertising on the Internet and placing ads in the Los Angeles Times seeking “investors.” The straw buyers were paid $10,000 for each property they “purchased.” Taking advantage of greed by institutional lenders to capture more loan business, the straw buyers were able to obtain 100% financing, relieving them of the risk to make down-payments, as occurred back in the good old days of prudent underwriting. When the straw buyers defaulted, the originators and their secondary market victims, e.g., Fannie Mae and Freddie Mac, lost upwards of $20 million.

My pet peeve with prosecutors is their consistent lack of interest in prosecuting the straw buyers in mortgage fraud cases. Let’s see if this case is any different.

Read the original article in Courthouse News. You can also read earlier postings about these defendants by using the Search tool on the left side of the California Real Estate Fraud Report.

Sentencing for Hendrix Montecastro and his mother Helen Pedrino, who were both convicted in what prosecutors said was a massive real estate and securities investment scam and Ponzi scheme that spanned several states, has been delayed until June.

Montecastro, 40, who acted as his own attorney, was convicted of over 100 felony charges, has a new attorney hired by his family to review approximately 8,000 in court documents, obviously looking for a procedural error that could cause the attorney to file a motion for a new trial. If his attorney, Daniel Greenberg, fails, Montecastro could receive a state prison sentence of 124 years.

Helen Pedrino, who was characterized as the recruiter of the victims, who lost their homes, savings and good credit standing, faces 17 years in state prison if her new court-appointed attorney cannot find something in the court transcripts to warrant a new trial.

Chief Deputy District Attorney Vicki Hightower was the prosecutor and the case was heard before Riverside County Superior Court Judge Jeffrey Prevost. Judge Prevost struck down 13 of the guilty verdicts, saying they were not in proper form, which Hightower attributed to clerical errors.

Read the original article in the Press Enterprise.

Gary Armitage, a man who was accused of cheating North Coast residents out of up to $200 million in a huge real estate Ponzi scheme, is going to prison for 10 years, thanks to the Shasta County Superior Court judge who sentenced him.

Armitage, 62, faced a barrage of angry investors, many of whom were retirees who gave him their life’s savings. Up to 2,000 people were defrauded.

“All of your words and promises turned out to be lies,” said Ron Johnson, of Auburn, a retired insurance company employee. “Not only did you steal the money we worked for our entire lives to save, you destroyed our ability to trust in others and ourselves.”

Gary Armitage, who pleaded no contest in January 2013 to four felony counts of conspiracy and securities fraud, had two accomplices. James Koenig, of Redding, has pleaded not guilty and Jeffrey Guidi, of Santa Rosa, has pleaded guilty to lesser charges.

Read the original article in the Auburn Journal.

Below is a press release by the Financial Fraud Enforcement Task Force regarding rigging of bids at public real estate foreclosure auctions:

A Northern California real estate investor has agreed to plead guilty for his role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.

Felony charges were filed today in the U.S. District Court for the Northern District of California in San Francisco against Mohammed Rezaian, of Novato, Calif. Rezaian is the 30^th individual to plead guilty or agree to plead guilty as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.
 
According to court documents, Rezaian conspired with others not to bid against one another, but instead to designate a winning bidder to obtain selected properties at public real estate foreclosure auctions in San Francisco and San Mateo counties, Calif . Rezaian was also charged with conspiring to use the mail to carry out schemes to fraudulently acquire title to selected properties sold at public auctions, to make and receive payoffs, and to divert to co-conspirators money that would have otherwise gone to mortgage holders and others.   According to court documents, a forfeiture allegation was also included in the charges against Rezaian.
 
The department said Rezaian conspired with others to rig bids and commit mail fraud at public real estate foreclosure auctions in San Francisco and San Mateo counties beginning as early as July 2008 and continuing until about January 2011.

 
“As a result of this investigation, the Antitrust Division has thus far filed charges against 30 real estate investors in Northern California for their illegal activity at foreclosure auctions,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The division will vigorously pursue the perpetrators of these fraudulent and anticompetitive schemes.”
 
The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at San Francisco and San Mateo County public foreclosure auctions at non-competitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner.

 
“Not only is bid rigging at public foreclosure auctions illegal, it also severely undermines the integrity of a fair and competitive marketplace,” said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field Office. “The FBI will continue to investigate and pursue those who commit fraudulent anticompetitive practices at foreclosure auctions and work with those who have fallen victim to such selfish crimes.”

 
A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.
The charges today are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties, Calif. These investigations are being conducted by the Antitrust Division’s San Francisco office and the FBI’s San Francisco office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco office at 415-436-6660 , visit www.justice.gov/atr/contact/newcase.htm, or call the FBI tip line at 415-553-74 00.

Today’s charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov .

A man Contra Costa prosecutor Ken McCormick has referred to as a “national expert” in real estate has been charged by the Contra Costa County District Attorney’s Office of ripping off a New York family of over $1 million.

The man, Ken Beasley, 67, is also a resident of New York but but the three felonies with which he has been charged occurred in Danville. Beasley was charged with two felony counts of embezzlement and one enhanced charge accusing him of causing excessive loss.

The New York family gave Beasley, who has published four books about real estate and who has appeared on Fox News Channel as a real estate “guru,” $1,140 million back in 2006 to purchase three investment properties in Las Vegas, Nevada. According to prosecutors, Beasley did not purchase the properties (real estate investment fraud) but gave the victim fraudulent documents  (title fraud) and sent him monthly rental payments to keep the fraud going. The scam was only discovered when several years later, the family attorney did a title search on the properties while setting up a will and saw they were not in the name of his client.

Read the original article in the Silicon Valley Mercury News.

Update: Ken Beasley is quoted in a subsequent article in the Silcon Valley Mercury News as denying the charges.

Hendrix Montecastro, 40, of Maryland, was convicted on March 25 of 304 counts in a complex real estate fraud case that prosecutors say cost the victims $142 million in total. According to Riverside County Chief Deputy District Attorney Vicki Hightower, the jury convicted Montecastro on charges that included grand theft, destruction of evidence and felony fraud against 26 of 27 named victims — with asset losses totaling $3.6 millions.

He faces a prison sentence of more than 100 years.

Helen Pedrino, 61, of Murrieta – the mother of Hendrix Montecastro, was found guilty of 54 felonies based on her recruitment of five victim investors. When she is sentenced, she could spend up to 30 years in prison.

James Benjamin Duncan, who orchestrated the fraud, testified against Montecastro and Pedrino after making a deal with prosecutors. He is going to be sentenced for his crimes this month, along with Maurice McLeod, who also played a prominent role. A third man, Christopher Oetting, hanged himself on February 16, 2010 in his home, after admitting he to charges of conspiracy, money laundering and multiple counts of filing fraudulent tax returns.

The remaining defendants: Charlie Choi, Cindy Kelly and Thuan Nhan Du pleaded guilty to selling securities without a license and received probation.

As with all Ponzi schemes, this one worked well because friends and relatives convinced each other that the defendants’ “real estate investment” program was profitable. Good judgment was suspended and people refinanced their homes to draw out equity, cashed in their retirement plants and charged up their credit cards. Almost all of the victims were completely ruined as no monies have been recovered.

In a nutshell, the real estate investment fraud worked by the use of two companies set up by the defendants: Jovane Investments and Stonewood Consulting. The investors placed their money into Jovane, a shell company. The investors paid the seller the asking price or close to it and Jovane Investments funded the loans, but at 20-25% more than the appraised value.

The investors were unaware that Stonewood would locate the properties, also arrange financing and do so also at inflated values.

To understand the depth of this real estate fraud, refer to the article published in the Press Enterprise.

Part of Hendrix Montecastro’s defense was that he was a victim of James Benjamin Duncan too, but Prosecutor Hightower showed that Montecastro was anything but poor, spending $500,000 just before the Ponzi scheme collapsed on a non-profit called the Biocybernaut Institute.