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March 06 from WSJ Real Time Economics
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By Ogozi John
A Trenton-based affordable housing developer has been sentenced to two years and three months in prison for diverting construction loans for his personal use.
Robert Kahan, 68, a well-known housing developer in Trenton, NJ and owner of Tara Developers, pleaded guilty to two counts of making false statements on a loan application that he took for his company.
From 2006 to 2009, Kahan diverted funds from a construction loan that he received from Roma Bank. In the loan application, he had stated that the funds will be used as payment for labor, materials and other costs needed to be made on the construction work of the Southwest Village II Project, a 52-unit affordable housing project in Trenton.
Instead, Kahan used $340,000 from the loan to make a down payment for a condominium in Florida, and also diverted the loan proceeds into other development projects and for personal use.
Apart from the $6.4 million loan he obtained from Roma Bank, Kahan, who is a city-designated developer, also received tens of thousands of dollars in federal and state funding for his affordable housing projects.
He was originally indicted on 25 counts that included bank fraud, mail fraud, and fraud against a local government receiving federal funds, among others. But in his plea agreement, he admitted to three counts relating to the Southwest Village II project.
Also, Kahan has agreed to forfeit about $990,000 of proceeds from the scheme and another $89,000 that has been seized by the federal government and will be released to any affected institution that lays claim to it.
When asked to address the court before his sentencing, Kahan apologized to his family for the “ordeal” he has put them through, “I fear that all our hard work and my reputation has been forever tarnished by my action, it may now seem hard for you to accept, but I truly believe in helping people to live in better neighborhoods. I hope to be able to continue supporting my family and helping the community. I ask your Honor to please give me that chance,” he said.
By Ogozi John
A federal grand jury has indicted the former assistant vice president at the Fort Lee branch of the defunct BankAsiana, where she allegedly embezzled more than $1 million.
Miye Chon, aka “Karen Chon,” 34, of Englewood Cliffs, NJ, is now facing a 27-count charge of theft, embezzlement or misapplication of funds by a bank officer or employee, and a single count charge of bank fraud.
According to court documents and statements, Chon, was initially employed by BankAsiana as an operations officer before being given the position of assistant vice president and operations officer at the bank’s Fort Lee Branch. Chon had access to customers’ accounts, the bank’s internal records, computer system and vault, and she used this access to steal from the bank by regularly making unauthorized transfers from customer certificate of deposit (CD) accounts into BankAsia’s vault cash account and then proceeded to physically remove the cash from the bank’s vault. She continued this scheme for several years, embezzling over $1 million.
In October 2013, BankAsiana, a federally insured financial institution, was acquired by Wilshire Bank. A customers’ complaint of irregularities with tax and account records led to an internal audit, and this was when Chon’s unauthorized transfers were discovered. Chon covered up her fraudulent cash withdrawals by altering bank records and then continued with transferring funds from newer CDs into the maturing CDs that were short of funds due to her withdrawals.
The audit also showed that Chon was regularly making transfers totaling tens of thousands of dollars at a time. In a period of one week, before her last day at work in the bank, she made transfers of about $1.2 million between customers’ accounts in order to cover up her previous loots from the accounts.
Investigations by Wilshire bank showed that Chon’s scheme resulted in a $1.4 million loss to the bank.
Chon now faces a maximum sentence of up to 30 years in prison on each count charge and a fine of $1 million, or twice the gross gain or loss resulting from the scheme. Also, it is mandatory that she pay full restitution to the affected bank.
By Ogozi John
Two brothers, Scott and Kevin Lee, have been sentenced to prison for carrying out a $28 million mortgage fraud scheme that involved dozens of banks in Arizona.
The two brothers were in charge of Summit Capital, a family-owned company based in Mesa, AZ that specialized in high-end residential mortgage loans and custom-home construction loans. Court documents also showed that the brothers used their company to submit fraudulent loan applications.
Apart from false information in their loan applications, the Lees also admitted to getting more than $1.5 million in commissions from the loans and even going further to forge signatures and create dubious financial and construction-related documents.
“Through Summit Capital, Scott Lee and Kevin Lee originated dozens of fraudulent loans by providing false information on loan applications, forging signatures, and creating false financial and construction-related documents,” according to a statement from the Arizona U.S. Attorney’s Office.
Scott Lee, 46, was the owner of Summit Capital, while Kevin Lee, 35, worked with the company along with other family members.
In his plea agreement, Scott Lee said:”I began defrauding financial institutions and individuals by obtaining residential mortgage and custom-home construction loans using false statements and representations on loan applications.”
Also, while making his plea agreement, Kevin Lee admitted that he helped his brother and taught him how to use computer software in creating false construction contacts, invoices, inspection forms, alter or create buyers income, assets, liabilities and bank statements. Additionally, he signed the name of buyers on application documents.
Scott Lee was sentenced to five years in prison with additional five years of probation, while Kevin Lee was sentenced to 12 months in prison with additional five years of supervised release. Other conspirators in the scheme also got varying prison terms.
They were all ordered to pay restitution to lenders.
By Ogozi John
On February 2 Derek Richard Brewart, 53, a former Upland insurance agent pleaded guilty to two federal charges – bank fraud and filing a false tax return before U.S. District Court Judge, Jesus G. Bernal.
Brewart’s scheme garnered nearly $6 million, which was used to pay operating expenses and employee payroll for Hamilton Brewart Insurance Agency. HBIA was owned and managed by Brewart. The agency operated business in San Bernardino County, California as well as other locations.
Between 2008 and 2012 and possibly beyond, Brewart is accused of submitting loan applications in the name of his clients to Universal Bank, headquartered in Covina unbeknownst to the clients who had not authorized the applications. According to the federal criminal complaint filed by the U.S. Attorney’s Office, these clients had already financed their premiums through other financial resources or paid their premiums in full. Brewart then requested Universal Bank send loan documents directly to him using a post office box rather than his clients’ mailing address. In doing so, the clients remained unaware of his actions.
Brewart confessed as part of his guilty plea, that on 2010 and 2011 tax returns, he failed to report approximately $785,922. Both state and federal law enforcement agencies were involved in the investigation including the Federal Bureau of Investigation, the California Department of Insurance and the Internal Revenue Service-Criminal Investigation.
Sentencing by Judge Bernal is scheduled for July 13, at which time Brewart faces three years in federal prison for the tax charge and a statutory maximum sentence of 30 years in federal prison for the bank fraud charges.
By Ogozi John
A former employee of the Bank of New York Mellon Corp. who embezzled more than $2.4 million from the bank has pleaded guilty to charges of fraud and embezzlement, according to an announcement by U.S. Attorney David Hickton.
The announcement further states that Joseph Graziano Jr., from Pittsburgh, will now serve a mandatory minimum sentence of two years and faces a maximum sentence of up to 90 years in prison, and pay a fine of $3 million or both.
At the trial before U.S. District Judge Terrance McVerry, Graziano pleaded guilty to charges of bank embezzlement, bank fraud, conspiracy, mail fraud, aggravated identity theft and filing a false income tax return.
According to the announcement, Graziano who worked as a corporate trust administrator at Bank of New York Mellon Corp. for 3 years, was able to access and wire funds in and out of accounts, and he used this opportunity to embezzle $2.4 million by wiring funds from the corporate trust accounts of the bank into his personal bank accounts, and he also failed to report the embezzled funds as income on his federal income tax returns.
Even before and after his employment at the Bank of New York Mellon Corp., Graziano was also involved in defrauding other banks that included Dollar Bank, First Niagara Bank, First Commonwealth Bank, Ameriserv Financial Bank and PNC Bank, where he submitted fraudulent loan documents in order to obtain extended bank credits. He also engaged in fraud schemes on the online shopping platform www.ebay.com and was part of a conspiracy to acquire counterfeit currency through a source in Uganda.
He is due to be sentenced in May.
By Ogozi John
U.S. District Judge Ronald Guzman has sentenced two former executives of the defunct Sentinel Management Group to lengthy prison terms for their role in what is the largest financial fraud case ever prosecuted in the Federal Court in Chicago.
Bloom misappropriated securities belonging to many customers as he used the funds as collateral for loans that Sentinel obtained from the Bank of New York Mellon Corp. The loan was then used for the purchase of high-risk, illiquid securities running into several millions of dollars and was of no benefit to the customers, instead, it was part of a trading portfolio kept by Bloom and other Sentinel’s officers, his family members and businesses operated by the Bloom family.
In a bid to conceal the scheme, Bloom gave false representations of the returns accrued on securities belonging to customers, and he directed employees to issue misleading account statements that were then sent to their customers.
During the span of January 2003 until August 2007, Sentinel’s daily operations were controlled by Bloom, and he continued misleading customers to invest more than $1 billion, without letting them know the actual risks, value and profitability of their investments. The cover-up continued up until four days prior to the day Sentinel declared bankruptcy on August 17, 2007. At that time Bloom stated that “liquidity crisis” and “investor fear and panic” were responsible for Sentinel’s financial problems. When actually, the problems were due to purchasing high-risk, illiquid, and excessively-leveraged securities and the huge indebtedness to the Bank of New York.
Mosley, former head trader at Sentinel had pleaded guilty to charges of investment fraud. Judge Guzman ordered the pair to pay a total of $665,923,451 in restitution to customers, the bank and others affected by the scheme.
“The Sentinel case has had an enormous effect on the business and legal community in Chicago for years, and will continue to do so for years to come, and has become an infamous risk management case study.” Assistant U.S. Attorney Clifford C. Histed said during the sentencing.
By Ogozi John
According to an announcement by U.S. Attorney General for the Middle District of Georgia Micheal J. Moore, the former President and CEO of Tifton Banking Company (TBC) has been indicted by a U.S. grand jury for allegedly hiding under-performing, high-risk loans from the bank, the Federal Deposit Insurance Corporation (FDIC), state regulators, and others.
Hall, who served as President and Chief Executive Officer of TBC for 5 years, is accused of engaging in a long running scheme to mislead the bank and its loan committee by concealing details of loans given to individuals and businesses.
His alleged actions caused TBC to incur losses running into millions of dollars, as the bank approved and renewed delinquent loans, and loans without collateral.
According to the indictment, Hall hid his personal and business interests in the approval of at least two transactions in which he had approval authority. One of them included a number of loan approvals by Hall to the buyer of his condominium in Panama City Beach, Florida. Hall allegedly made several misrepresentations regarding the loans to TBC’s loan committee without letting them know his personal interest in the transaction. Hall then went further to conceal the loan from the FDIC and state regulators after the buyer’s loan payments became delinquent.
Hall allegedly made $50,000 from the sales of his condominium in a transaction that was fully funded by unsecured loans that he approved to the buyer. Meanwhile, TBC experienced losses of over $400,000 from the transaction after the buyer declared bankruptcy.
In November 2010, TBC was still yet to repay the $3.8 million received from the Troubled Asset Relief Program (TARP), when it was closed by the Georgia Department of Banking and Finance due to its poor financial condition.
By Ogozi John
The former Chief Lending Officer of Southwest Georgia Farm Credit, Larry Malone, has been sentenced to 48 months in prison for bribery and bank fraud charges.
According to an announcement by Michael J. Moore, United States Attorney for the Middle District of Georgia, Malone, 59, of Bainbridge, served as the Chief Lending Officer for the Southwest Georgia Farm Credit for 20 years, and was still occupying that position when he carried out the fraud.
Malone gave out a total of $25,540,896 in fraudulent loans to different borrowers in both the Middle District of Georgia and the Northern District of Florida. He also received more than $900,000 in bribes and kickbacks from these borrowers.
The Middle District of Georgia and the Northern District of Florida both brought up the charges against him which was heard by Honorable W. Louis Sands, Senior United States Judge in Albany, Georgia.
Malone pleaded guilty to the charges and has now been sentenced to 4 years in prison. The judge also ordered that he pays a total of $25,540,896 in restitution to the Southwest Georgia Farm Credit and its insurers.
“After the financial crisis we experienced, no one can legitimately question the importance of pursuing people like Mr. Malone, who commit bank fraud,” said United States Attorney Michael J. Moore.
By Ogozi John
The owner of a luxury car dealership in New Jersey has been implicated in a fraudulent scheme that involved obtaining bank loans for cars that were never delivered to customers.
In an unsealed complaint jointly filed by 75 customers in U.S. District Court, Afzal “Bobby” Khan, 32, of Egg Harbor Township, faces a one-count charge of wire fraud and is now being hunted by the FBI.
According to prosecutors, Kahn repeatedly defrauded lenders and customers of the Emporio Motor Group in Ramsey. He obtained loans from an undisclosed bank for cars that were never delivered, and also collected loans for cars that were delivered but were not under his title.
These fraudulent actions affected the car buyers, as many of them were held responsible for the bank loans but were not able to register their cars.
In one of the cases,, prosecutors say Kahn allegedly submitted a loan application for $150,000 toward the purchase of a Rolls Royce, but the car was never delivered to the buyer.
Kahn personally sent several loan payment checks that were either stopped or returned due to insufficient funds and he is still yet to pay the balance for the Rolls Royce.
Prosecutors have said that Kahn faces up to 30 years in prison if found guilty of the charge.
By Ogozi John
Massachusetts Attorney General Martha Coakley is going through the records of Santander Bank after investigations were opened into suspected cases of auto loan fraud committed by the bank.
According to reports, the Attorney General is looking for possible evidence that shows that Santander Bank’s auto finance company deliberately gave out loans to borrowers who could not make payments, and later sold these loans to Wall Street. The loans were again later packaged and resold as securities to unsuspecting investors.
To this effect, Coakley has ordered that Santander Bank’s U.S. auto finance company appears in court with documents showing its borrowers’ credit histories, the interest rates charged on loans and the risks on such loans.
“We are using our experience, gained in holding banks responsible for unfair and predatory mortgage loans, to ensure consumers are protected in other areas of lending,” said the Attorney General’s spokesman Brad Puffer.
In a statement concerning the investigations, Santander Bank said they are cooperating fully with the Office of the Attorney General as they remain committed to operating their auto financing business in accordance with laid down rules.
“We will comply with all lending and loan servicing laws as well as the rules and guidance of our supervisors and regulators,” the statement read.