News, Notes And Updates: Jailed And Disbarred, Former Massachusetts Attorney Who Fleeced 95-Year-Old Client Arrested On New Charges

EDITOR’S NOTE: This post distills recent news and development on the fraud and Ponzi fronts.

CHARGED: Six people — including a disbarred attorney already in prison — have been charged in Massacuusetts in an elaborate mortgage-fraud scheme.

Bruce Namenson, the former lawyer, was charged with 18 counts of of larceny for arranging bogus loan closings, sham notarizations and pocketing fraudulent proceeds from real-estate deals.

Namenson, 47, of Walpole, Mass., already was in prison when arrested on the mortgage-fraud charges. In an earlier case, he was convicted of operating a complex scam in which both clients and insurance companies were bilked.

One of the victims in the insurance-fraud case was a 95-year-old man, Massachusetts Attorney General Martha Coakley said.

In the insurance case, which involved victims young and old, Namenson defrauded the 95 year-old client out of a $20,000 bodily injury settlement check.

“The client had been injured in a car accident, and instead of paying the client a portion of the settlement, Namenson forged the client’s signature on a settlement release and settlement check, kept the money, and repeatedly told the client that his case had never been settled,” Coakley’s office said in 2008.

Namenson also fleeced an injured, 15-year-old client out of most of a $100,000 settlement, prosecutors said.

Charged in the new case with Namenson were Joshua Brown, 29, of Brockton, Mass; Brian Frank, 32, of New Hartford, N.Y.; John Sweetland, 28, of Yorba Linda, Calif; Linda Defeo, 28, of Springfield, Mass; and Brian Arrington, 39, of Boston.

Brown, Frank and Sweetland are real-estate investors, Coakley’s office said yesterday. Defeo and Arrington are mortgage brokers.

The real-estate scheme fleeced banks and borrowers out of $12.5 million, and involved bogus appraisals, submissions of bogus loan documents and misrepresentations to virtually every party in transactions tied to 26 distressed properties, prosecutors said.

Brown, Frank and Sweetland skimmed $2 million from corrupt transactions, Coakley’s office said. Defeo and Arrington arranged for bogus loans, and Namenson presided over corrupt closings and pocketed money that was supposed to pay for title insurance.

INDICTED: If you’re a Forrest Gump fan, this case might be one to add to a Bubba Blue list of the various ways to have a Ponzi scheme, instead of the various ways to have shrimp.

John D. Terzakis, 52, of Hinsdale, Ill., and Robert E. Estupinian, 47, of San Jose, Calif., have been indicted in California on 12 felony counts of wire fraud, money laundering, and conspiracy to commit wire fraud and money laundering.

A company operated by Terzakis and  Estupinian — Vesta Strategies of San Jose — was a Ponzi scheme, U.S. Attorney Joseph P. Russoniello said. Terzakis was the majority owner of Vesta and controlled its business activities. Estupinian, was the chief executive officer and minority owner of Vesta until December 2007.

The scheme, according to prosecutors, involved the business of being a “qualified intermediary” in tax-deferred, real-estate exchanges under section 1031 of the Internal Revenue Service Code.

“In general, a Section 1031 exchange allows taxpayers to avoid paying tax on capital gains by depositing the proceeds from an investment real estate sale, that would otherwise qualify as a taxable capital gain, with a qualified intermediary for up to 180 days,” prosecutors said.  “Under Section 1031, if the taxpayer purchases another investment property within those 180 days, the proceeds from the first sale may be rolled over into the new investment without being taxed as capital gains.”

Although Vesta promised to hold funds as a qualified intermediary, Terzakis and Estupinian “stole client funds for their own use” and and also “used new client deposits to pay redemptions owed to earlier clients,” prosecutors said.

Terzakis was arrested in Illinois. He made an initial appearance before a judge, who placed him on home confinement with electronic monitoring, pending a second appearance Jan. 13. Estupinian was arrested in California. He also made an initial appearance before a judge, and was placed on home confinement with electronic monitoring secured by a $1 million bond. His next appearance is scheduled Jan. 20.

CONVICTED: Oren Eugene Sullivan, 63, of Rock Hill, S.C., has pleaded guilty to mail fraud in a Ponzi scheme.

U.S. Attorney Walt Wilkens said Sullivan admitted that he ran a Ponzi scheme between 1995 and 2008 in which he sold false investments to 35 different individuals or groups of investors.

“Sullivan told clients that he was managing their investment accounts, and paid small dividends to his investors,” prosecutors said. “However, he was actually converting their invested money for his own use, and paying the dividends with money he received from new investors. Over the course of the scheme, Sullivan took in approximately $2.5 million from unwitting investors.”