Thursday, June 19, 2008

FBI's 'Malicious Mortgage' Operation Busts Hundreds

Two senior managers of failed Bear Sterns hedge funds were also indicted in a separate mortgage-related securities fraud case.

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - The Department of Justice (DOJ) and Federal Bureau of Investigation (FBI) on June 19, 2008, announced a national sweep of 144 mortgage fraud operations and the arrests of 406 alleged perps.

Mortgage frauds employ a variety of tactics including misrepresentations, deceit and other criminal abuses to fund, purchase or insure mortgage loans.

Mortgage fraud has become a staple in today's organized crime circles. The FBI says known crime syndicates and other recognized organized criminal operations are not currently associated with mortgage fraud, but the crime does come with the hallmarks of what is considered organized crime -- collusion, conspiracy, insider cooperation and lately, identity theft, one of the newest growth sectors in organized crime recognized by the FBI.

Mortgage fraud is federal felony, punishable by up to 30 years in federal prison or $1,000,000 fine, or both. It is illegal for anyone to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution.

The arrests, part of Operation Malicious Mortgage, were conducted from March 1 to June 18, to address three types of mortgage schemes.

• Lending fraud. Lending fraud frequently involves multiple loan transactions constructed with gross fraudulent misrepresentations about the borrower's financial status, such as overstating the borrower's income or assets, using false or fictitious employment records or inflating property values.

• Foreclosure rescue. Foreclosure rescue scams involve criminals who target legitimate homeowners in dire financial circumstances and fraudulently collect fees for foreclosure prevention services or use fraud to obtain ownership interests in residential properties.

• Bankruptcy. Both of the above fraudulent mortgage schemes may be furthered by filing bankruptcy petitions that automatically stay foreclosure.

The FBI estimates that approximately $1 billion in losses were inflicted by the mortgage fraud schemes employed in the recent busts.

In a separate case, the U.S. Attorney's Office for the Eastern District of New York indicted two senior managers of failed Bear Stearns hedge funds, charging Ralph Cioffi and Matthew Tannin with conspiracy, securities fraud and wire fraud. Cioffi was also charged with insider trading.

The indictment alleges that the duo marketed two funds as a low risk strategy, backed by a pool of debt securities, including mortgages. The indictment also alleges that by March 2007, the managers believed the funds were in grave condition and at risk of collapse, but allegedly didn't disclose that information to investors. The funds collapsed in the summer of 2007 resulting in approximately $1.4 billion in losses to investors.

"Mortgage fraud and related securities fraud pose a significant threat to our economy, to the stability of our nation's housing market and to the peace of mind of millions of American homeowners," said Deputy Attorney General Mark R. Filip.

"Operation Malicious Mortgage and our other mortgage-related enforcement actions demonstrate the Justice Department's commitment and determination to combat these criminal schemes, hold their perpetrators accountable and help restore stability and confidence in our housing and credit markets," he added.

The operation represents the joint efforts of the FBI, U.S. Postal Inspection Service (USPS), Internal Revenue Service (IRS) Criminal Investigation Division, U.S. Immigration and Customs Enforcement (ICE), U.S. Secret Service (USSS), U.S. Trustee Program, Department of Housing and Urban Development (HUD) Office of the Inspector General, Department of Veterans Affairs (VA) Office of the Inspector General, and Federal Deposit Insurance Corporation (FDIC) Office of the Inspector General.

Operation Malicious Mortgage is the most recent coordinated sweep in an ongoing law enforcement effort to combat mortgage fraud, which also included Operation Continued Action in 2004 and Operation Quick Flip in 2005.

Since July 2002, the DOJ has obtained nearly 1,300 corporate fraud convictions, including the convictions of more than 200 chief executive officers and corporate presidents, more than 120 corporate vice presidents and more than 50 chief financial officers.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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