April 30, 2010

MINNESOTA USDOJ (Loansafe.org) – A 41-year-old Prior Lake man was sentenced today in federal court in St. Paul on charges connected to an equity-skimming scheme that targeted vulnerable homeowners. United States District Court Judge Patrick J. Schiltz sentenced Michael Fiorito to 270 months in prison on one count of conspiracy to commit mail fraud and six counts of mail fraud. Fiorito was indicted on June 19, 2007, and was convicted by a federal jury on May 20, 2009, following a three-week trial. At sentencing, Judge Schiltz described Fiorito as a “troubled and dishonest” individual who is “incapable of empathizing” with his victims and who “refuses to accept responsibility” for his actions. Judge Schiltz went on to impose a prison sentence greater than called for under the U.S. Sentencing Guidelines. In doing so, he said, “Never before have I varied an upward sentence, but in this case, I find it justified because of the need to protect the public. I have no doubt that upon his release from prison, Mr. Fiorito will return to victimize others, and the sole way to limit that is to keep him locked up. He’s spent most of his life lying and stealing, and I do not believe it’s possible to deter him.”

According to court documents and evidence presented at trial, Fiorito was a mortgage broker at three different Minnesota mortgage companies between 2004 and 2007. During that time, he worked with his assistant, Kristin Louise Jerde, to devise a scheme to defraud homeowners who were in foreclosure or behind on their mortgage payments. Specifically, Fiorito and Jerde caused those homeowners to refinance their home loans  or sell their homes outright to Fiorito. Then, he stole their money, either taking the equity checks produced during  the refinancing process or the closing checks intended for the sellers of the homes he supposedly
B. Todd Jones United States Attorney Jeanne F. Cooney Director of Community Relations (612) 664-5611
email: jeanne.cooney@usdoj.gov

FOR IMMEDIATE RELEASE
Thursday, April 29, 2010
www.usdoj.gov/usao/mn
United States Department of Justice
United States Attorney’s Office
District of Minnesota
News Release

Following sentencing, United States Attorney B. Todd Jones said, “The Department of Justice is committed to investigating and prosecuting all types of financial fraud. This fraud is particularly cruel because the victims were already struggling during a time of financial turmoil. Fiorito represented himself as someone who could help them, and, instead, he caused them even more suffering and hardship.”

In some instances, Fiorito stole checks meant for others simply by intercepting them. In other instances, he acquired the money by intimidating victims into endorsing the checks over to him. In most cases, however, he caused his victims to execute documents granting him power of attorney. With those executed documents, he could easily deposit money belonging to others into
accounts over which he had exclusive control.

During trial, witnesses testified that they were unaware they had signed documents granting Fiorito permission to handle their money. In addition, they often times failed to realize they had actually sold their homes to Fiorito. According to them, Fiorito routinely misrepresented the papers he gave them for signature, which led them, unknowingly, to award Fiorito power over their money and title to their property. Court documents also indicate that under certain circumstances, even after Fiorito had fraudulently acquired title to the homes of these unsuspecting people, he sent them monthly “mortgage” bills.

Much of the fraudulent documentation that Fiorito supplied to and obtained from his victims was sent through the U.S. mail, prompting the charges filed against him in this case. Following today’s sentencing, Shawn S. Tiller, Inspector in Charge of the Denver Division of the U.S. Postal Inspection Service, which covers the Twin Cities said, “The sentence handed down today should send a message to would-be criminals who are considering using the U.S. mail to perpetrate their fraudulent schemes. The U.S. mail is still one of the most trusted means of communication in this country, and the United States Postal Inspection Service will continue
to uphold that public trust and ensure that individuals using the mails to commit fraud are brought to justice.”

Between January 2005 and March 2007, Fiorito fraudulently converted to his own use almost $500,000 in equity as a result of his illegal activity. His victims included 17 people from Janesville, Mound, Duluth, Mankato, Prior Lake, Spring Lake Park, Austin, Golden Valley, Vadnais Heights, and Shoreview, Minnesota. In connection to this crime, Fiorito’s assistant, Kristin Louise Jerde, pleaded guilty to one count of conspiracy to commit mail fraud. On September 9, 2009, she was sentenced to serve
three years of probation and ordered to pay $364,092.24 in restitution.

This case was the result of an investigation by the U.S. Postal Inspection Service and the Minnesota Financial Crimes Task Force. It was prosecuted by Assistant U.S. Attorney David J. MacLaughlin.

During the same time, Bridge was paying thousands of dollars in kickbacks to John Ngo, an employee of Long Beach Mortgage (formerly a subsidiary of Washington Mutual Bank) to process what he knew were fraudulent loans application packages to be secured by residential properties located in the Sacramento and Stockton areas. Ngo pleaded guilty onDec. 17, 2007 to perjury, admitting that he had falsely denied to the Grand Jury that he had received these kickbacks. He is scheduled for sentencing on Aug. 9, 2010.

Paul Bridge, William's brother, was also a loan broker at The Loan Center and was charged with paying kickbacks. He pleaded guilty on June 16, 2008 and is scheduled for sentencing on Aug. 26, 2010.

Trial is scheduled to begin on June 15, 2010 in the case against Joel Blanford, a former Account Executive at Long Beach Mortgage, who is charged in this investigation with mail fraud in connection with the submission of fraudulent loan applications.

U.S. Attorney Wagner stated, "The U.S. Attorney's Office continues its pledge to work with our law enforcement partners to investigate and prosecute the industry insiders who manipulate the mortgage loan process for their own financial gain."

This law enforcement action is part of the work being done by President Barack Obama's Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. One component of the FFETF is the national Mortgage Fraud Working Group, co-chaired by U.S. Attorney Wagner.

For more information on the task force, visit StopFraud.gov.

SOURCE U.S. Department of Justice

The indictment charges that from November 2004 through February 2006, these individuals knowingly participated in a scheme to defraud mortgage lenders.

The loan applications were completed or supervised by Melvin Johnson or Curtiss Johnson at CHALLENGE MORTGAGE’s branch office in Southfield, Michigan, where Melvin was the branch manager and Curtiss a loan officer.

Challenge Mortgage was a mortgage broker based in Florida.

The indictment alleges that the loan applications were materially false or fraudulent and that when the mortgage loans closed, Melvin Johnson and Curtiss Johnson benefitted financially through checks made payable to Challenge Mortgage and other businesses with which Melvin Johnson was associated, such as JEM Marketing Realty, JEM Processing, and First United Realty.

The indictment also alleges that the fraudulent information provided in the loans documents included false employers, overstated income, fictitious bank accounts, stolen identities, and information obtained from forged deeds, and that as a part of the scheme, Brady Muse created counterfeit documents to support the fraudulent loan packages assembled by Melvin Johnson and Curtiss Johnson.

It also alleges that Lanita Gatewood allowed property she did not own to be titled in her name, and that she distributed the proceeds of the fraud to other participants in the scheme.

The defendants are charged with multiple counts of wire fraud and interstate transportation of money taken by fraud. Each count of wire fraud carries a maximum penalty of 20 years’ imprisonment and a $250,000 fine.

Each count of interstate transportation of money taken by fraud carries a maximum penalty of 10 years’ imprisonment and a $250,000 fine. The defendants could also be ordered to pay restitution to the mortgage lenders.

An indictment is only a charge and is not evidence of guilt. A defendant is entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.

The case was investigated by the Federal Bureau of Investigation.

 

“The registry is working right now,” said Mark Pierce, deputy N.C. commissioner of banks.

“About half the states are on it today,” and all will join in the next 18 months, he explained.

Public access, however, “is still being developed.”

Eventually the state and the public will be able to check on a mortgage originator or other individual in the business and see whether he or she had been disciplined, for instance, or lost a license.

The SAFE Act responded in part to concern over mortgage fraud, which spiked during the housing boom and kept going after it collapsed.

The number of reported incidents of mortgage fraud jumped 26 percent in 2008 compared with 2007, reaching an all-time high, according to a report last year by the Mortgage Asset Research Institute. The report was compiled for the Mortgage Bankers Association trade group.

That came as the number of home loans being issued shrank, the report said.

The mortgage fraud issue has moved closer to home.

Two Whiteville men were sentenced Tuesday in U.S. District Court in Raleigh for their part in a mortgage fraud scheme. Three others involved, including a mortgage broker, were sentenced earlier in 2009.

The broker’s conviction would be trackable on the new database.

North Carolina has since 2002 licensed mortgage professionals who don’t work for commercial banks, Pierce said. But the state does not license mortgage employees at commercial banks, which fall under regulation of federal agencies.

But all mortgage professionals – licensed or not – will have to register with the national database.

“When we take a regulatory action, states can look at this national data bank,” Pierce explained. The database will also track the individuals’ employment and geographic moves.

“The database will help follow people around.

“People were going from one bank to another and one state to another. People would go from a non-bank company to a bank,” he said. The registry will allow the states to coordinate when they find a bad apple.

The SAFE Act affected North Carolina in another way. It changed its licensing law to conform to the law’s requirements, including minimum standards for licensing people in the mortgage business, Pierce said.

The state changes went into effect July 31.

The new law retains requirements for criminal background checks and fingerprinting of mortgage professionals that the state licenses.

Changes to the old law were few, however. Pierce said that the state’s law was already “95 percent” in compliance with federal rules.

What was changed included bonding amounts, which rose. Bonding for mortgage brokers rose to a range of $150,000 to $250,000 from $50,000. Bonding for what the state calls non-bank mortgage lenders, rose to a range of $150,000 to $500,000.

Kevin and Leslie Sluga have been charged with multiple counts of wire fraud and aiding and abetting. The charges were filed Wednesday in federal court in Fresno.

The primary players in the ongoing investigation, David Crisp and former real estate partner Carl Cole, are accused of defrauding mortgage loan companies and federally insured financial institutions by supplying false information and documents to obtain nearly $11 million in loans.

All of the loans went into default, leaving the lenders with millions in losses, according to the California Department of Real Estate.

The investigation into Crisp & Cole Realty began in September 2007 when federal agents raided 13 Bakersfield locations looking for evidence of fraud.

Both Crisp and Cole have been stripped of their state-issued real estate licenses, but neither man has been charged in criminal court.

The Slugas, reportedly relatives of Crisp, join former Crisp & Cole loan officer Jerald Teixeira as the only people charged in the case.

According to federal charges, Kevin Sluga was a certified public accountant and co-owner of his own accounting firm when he and Leslie Sluga helped defraud lenders by creating falsified documents. Sluga's firm was called California Business Solutions and later Comprehensive Business Solutions, according to court documents.

The U.S. Attorney's Office said a hearing on a proposed plea deal for the Slugas was scheduled for Friday morning in Fresno. The terms of the plea deal weren't disclosed.

Teixeira, the first person charged in the case, accepted a plea deal in September. In that, he admitted that he, along with Crisp and Cole and others, executed the fraud scheme.

Teixeira admitted to processing at least 60 fraudulent loans between October 2005 and January 2007 while employed with Crisp and Cole.

Click here to read the full criminal complaint against Kevin Sluga. Click here to read the full criminal complaint against Leslie Sluga.