SEC: Another Florida Ponzi Scheme; Financial Fraud Task Force: Guilty Plea By Attorney In California Mortgage-Fraud Case, Plus New Indictments

In a fast-moving news day on the fraud front, the SEC has accused two men and their Florida company of orchestrating a real-estate “promissory note” Ponzi scheme.

Separately, the Financial Fraud Enforcement Task Force announced the guilty plea of a California attorney in a real-estate swindle, plus the indictments of seven other people in separate cases of mortgage fraud in California.

In the SEC case, the agency accused Edward A. Allen and David L. Olson of Lakeland, Fla., and their company A&O Investments LLC, of conducting a fraudulent, unregistered offer and sale of approximately $14.8 million in securities.

Although Allen and Olson allegedly pulled off the swindle in Florida, the case was brought in the Northern District of Ohio because part of the scheme operated in the Youngstown-area community of Boardman.

“Allen and Olson’s representations about their use of offering proceeds, the collateral securing the investments, and the success of the investments were all false,” the SEC charged.

Allen is 42; Olson is 59. Their scheme affected at least 100 investors in at least nine states, the SEC said.

“As part of their money raising tactics, Allen and Olson convinced some of their investors to take out home equity loans so that they could invest the proceeds in the A&O promissory notes,” the SEC charged. “They persuaded other investors to refinance their home mortgages to interest-only loans with lower monthly payments so that they could invest the excess cash from the new interest-only mortgages in the promissory notes.”

SEC: Investors Lulled By ‘Interest’ Payments

It was yet-another case in which investors were lulled into a false sense of security because they were receiving payments even as a Ponzi scheme was occurring, the SEC said.

“A&O made monthly ‘interest’ payments to the investors through approximately March 2008,” the SEC charged. “The regularity of the ‘interest’ payments led several investors to invest more money and caused others to encourage their family and friends to invest.

“In approximately March 2008, A&O stopped making regular monthly ‘interest’ payments to most of the existing investors and investors began requesting the return of their investments. At that time, Allen and Olson admitted to A&O’s employees that they did not have enough money to make A&O’s March payroll. However, they continued to solicit investors and raised an additional $2.2 million from March through December 2008, some of which was used for payroll.”

Allen and Olson also used about $2.2 million to pay personal expenses for themselves and their family members, about $3 million to pay A&O employees and other independent contractors, about $1 million to acquire, rehabilitate, and furnish a lavish office building from which they conducted A&O’s activities, and about $506,000 for other A&O-related operating expenses.

Investors were left in the dark about how the men and the company were conducting business, the SEC said. The agency added that the deception ran wide and deep.

“In addition, Allen and Olson also made payments for multiple start-up companies that Allen and Olson formed and controlled which were not involved with real estate,” the SEC said. “These companies had names such as Geriatric Care Partners, LLC, and Cornerstone International Ministries, Inc. Allen and Olson transferred approximately $959,000 of investor funds to those entities and used the vast majority of the funds for purposes unrelated to A&O’s real estate business.”

California Mortgage Fraud

Anthony G. Symmes, 59, of Paradise, has agreed to plead guilty to money-laundering and conspiracy to commit mail fraud for his role in a mortgage swindle and assist the government in an ongoing probe into the affairs of Garret G. Gililland.

Gililland is under indictment in the Eastern District of California for mortgage fraud. He was extradited from Spain and jailed while awaiting trial.

Symmes is an attorney, a CPA and a builder in the Chico area. The scheme involved the fraudulent sales of 62 houses. Symmes already has deposited $4 million for restitution, the Task Force said.

The Symmes’ case started as a state investigation by a local district attorney and morphed into a federal probe as the local DA discovered more and more fraud, the Task Force said.

“Greedy, crooked developers, appraisers, mortgage brokers, and others contributed significantly to the great mortgage meltdown of the past two years,” said Butte County District Attorney Mike Ramsey.

“Greed led this formerly well-respected Chico developer down a path to his downfall and the destruction of a number of neighborhoods populated by good folks who have found their homes devalued by the empty foreclosures on their block,” Ramsey said.  “Once we discovered the complex, fraudulent scheme hatched here we began an extensive investigation. When we found the tentacles of this corrupt organization stretched beyond Butte County, we reached out to our federal partners for help. We are most gratified with the assistance and cooperation that has lead to the justice we see this day.”

Federal agencies are attacking mortgage fraudsters aggressively, said U.S. Attorney Benjamin B. Wagner of the Eastern District of California.

Schemers Causing Collapse Of Home Prices

“The various schemes reflected in the cases announced today illustrate the many varieties of mortgage fraud,” Wagner said. “These types of crimes have a broad impact on our communities, not only weakening financial institutions and devastating individual victims of the fraud schemes, but also driving down the value of many families’ primary asset, their home. Rooting out and prosecuting fraudsters in the mortgage and real estate industries is an extremely high priority for the U.S. Department of Justice. We are working on other mortgage fraud investigations here in the Eastern District of California, and there will be more to come.”

Tax criminals participating in mortgage fraud also will be weeded out, one of the region’s top tax investigators said.

“IRS-Criminal Investigation takes mortgage fraud seriously,” said said José M. Martínez, assistant special agent in charge, IRS-Criminal Investigation. “The impact of these types of crimes cannot be overstated. Fraud in the mortgage industry has played a major role in almost crippling this nation’s economy, and directly affecting our tax administration system.”

From 2006 through 2008, Symmes sold Gililland and Gililland’s associates 62 houses at artificially inflated prices, prosecutors said.

“These fraudulent purchases were financed by mortgage lenders in the total amount of approximately $21 million,” prosecutors said. “Symmes wrote checks back to Gililland and his associates totaling approximately $2.5 million. These price rebates from Symmes were concealed from the lenders. To date, dozens of Symmes’s homes have been foreclosed or short-sold. Losses realized to date total almost $5 million and are expected to climb. Due to the volume of the artificially inflated prices on homes in Chico, Symmes and Gililland were able to create artificially high comparable sales that appraisers relied upon, affecting the overall new-home market in the Chico area.”

Indicted in separate cases in Sacramento County were Lawrence Davis, 26, and Joel Clark, 27, both formerly of Sacramento and currently living in Las Vegas, and Eric Mortenson, 28, of Sacramento.

The indictments were unsealed this morning after Clark and Mortenson were arrested by FBI and IRS agents in Sacramento and Las Vegas. The indictment charges them with conspiracy to commit wire fraud and wire fraud in connection with an alleged property-flipping scheme in the Sacramento County area.

The federal case evolved from a state probe by the California Department of Real Estate, the Task Force said.

Meanwhile, in Shasta County,  Jeremiah Andrew Martin, 32, of San Antonio, Darrin Arthur Johnston, 45, of Redding, Todd Allen Smith, 47, of Redding, and Cheryl Ann Hitomi Peterson, 47, of Redding, were indicted yesterday by a federal grand jury.

The indictment was unsealed this morning when the defendants were arrested by FBI and IRS agents in Shasta County. All four defendants were charged with conspiracy to commit mail fraud, mail fraud and money laundering in connection with an alleged fraudulent foreclosure rescue scheme.

Assisting in the case are the FBI and the IRS, the Task Force said.

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