Monday, April 27, 2009

Mortgage Pay Off Scheme Brings Charges

So many people in the United States are disparately trying to hold onto their dream homes that this was almost inevitable.

A federal grand jury has indicted four defendants, and an information has been filed against a fifth, for their alleged participation in a massive mortgage fraud scheme that the government charges promised to pay off homeowners’ mortgages on their homes but left them to fend for themselves.

According to the indictment, the five used slick promotions that, in the words of Rod Rosenstein, U.S. attorney for Maryland, concealed "empty promises."

"They convinced many victims to invest at least $50,000 by refinancing their existing homes or buying new homes at inflated prices," Rosenstein says, "while claiming that Metro Dream Homes would repay the mortgages with revenue from profitable businesses."

The indictment alleges that there was no revenue to pay the mortgage payments. Instead, it is charged, the alleged conspirators used some of the investors' money to repay earlier investors in a Ponzi scheme and spent the remainder on themselves.

"The effects of this wide-ranging mortgage fraud scheme are particularly disturbing within the backdrop of today’s economic environment," said Executive Assistant FBI Director Thomas Harringon.

He says more than 60 federal task forces and working groups have been established across the United States to uncover mortgage and other financial crimes, particularly those that target homeowners.

According to the indictment, from 2005 to 2007 the defendants allegedly used corporate names such as "Metropolitan Grapevine LLC," "Metro Dream Homes," "POS Dream Homes," and "POS DH LLC" to entice homeowners and home purchasers to participate in a purported mortgage payment program called the "Dream Homes Program." To participate, an investor had to provide a minimum of $50,000 for each home enrolled in the program, in addition to an "administrative fee" of up to $5,000. In exchange, the program promised to make the homeowner’s future monthly mortgage payments, and pay off the homeowner’s mortgage within five to seven years. Thereafter, the homeowner and MDH would own an equal interest in the home.

The indictment alleges that Andrew Hamilton Williams, Jr., 58, of Hollywood, Fla., was the founder and owner of MDH; Michael Anthony Hickson, 46, of Commack, N.Y., was the chief financial officer; Isaac Jerome Smith, 46, of Spotsylvania, Va., was the president; and Alvita Karen Gunn, 31, of Hanover, Md., was the vice president of operations. The information alleges that Carole Nelson, 50, of Washington, D.C., was the chief financial officer of POS Dream Homes.

The indictment alleges that Dream Homes Program representatives explained to investors that the homeowners’ initial payments would be used to fund investments in automated teller machines, flat-screen televisions that would show paid business advertisements, and "Touch-N-Buy" electronic kiosks that sold telephone calling cards and other items. To give the Dream Homes Program a veneer of legitimacy and financial success, the defendants marketed the program through live presentations at luxury hotels in Maryland, Washington, D.C., and Beverly Hills, Calif., among other locations. The defendants allegedly told some of the investors that they should not worry about the price of the homes or monthly mortgage payments because MDH would make mortgage payments on their behalf.

The indictment alleges that the defendants failed to advise investors that the ATMs, flat-screen televisions and kiosks never generated any meaningful revenue. It charges that the defendants used the funds from later investors to pay the mortgages of earlier investors and that MDH had not filed any federal income tax returns throughout its existence.

The defendants also allegedly failed to advise investors that their investments were being used for the personal enrichment of select MDH employees, including the defendants, to pay salaries of up to $200,000 a year as well as their mortgages. In addition, the indictment charges the money was used to hire a staff of 10 chauffeurs and maintain a fleet of luxury cars, to travel to and attend the 2007 National Basketball Association All-Star game and the 2007 National Football League Super Bowl. While there, the indictment charges, they stayed in luxury accommodations.

According the the indictment the money they took from later investors was used to pay off previous investors in a prior failed ATM investment venture that Williams had founded called Bankcard Group.

Donations of up to $50,000 each were made to charitable organizations to allegedly give MDH the appearance of being financially successful.

On Aug. 15, 2007, the Maryland Securities Commissioner issued a cease-and-desist order to Williams, MDH and other related companies directing them to immediately stop the offering and sale of unregistered securities in connection with their promotion of the Dream Homes Program. However, the defendants allegedly called additional meetings after receiving the order in which they made additional misrepresentations about the financial success of MDH’s operations.

The indictment also charges that Hickson lied under oath, in September, 2007 during a challenge in federal court to the cease-and-desist order when he testified that the financial success of the Dream Homes Program did not rely upon new investor funds.

The government says more than 1,000 people invested some $70 million in the Dream Homes Program.

The four indicted defendants each face a maximum sentence of 20 years in prison for the fraud conspiracy; 20 years in prison on each of the 15 counts of wire fraud; and 20 years in prison for conspiracy to commit money laundering. Hickson also faces a maximum sentence of five years in prison for making false statements. Smith also faces a maximum sentence of 30 years in prison for bank fraud arising out of his alleged misrepresentation of his income in order to obtain a bank loan to purchase a new Bentley automobile. Nelson was charged by information with money laundering, which carries a maximum penalty of ten years in prison. The indictment seeks forfeiture of the fraud proceeds, including $70 million.

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