KABOOM! KABOOM! KABOOM! KABOOM! KABOOM! 5 Separate Federal Probes Lead To Dozens Of Fraud Arrests In Multiple States; 1 Case Alleges Nearly $2 Billion Scheme

Lanny Breuer, assistant attorney general and head of the Criminal Division of the U.S. Department of Justice

BULLETIN: The U.S. government has announced charges against at least 43 defendants in five separate financial-fraud schemes, the largest of which allegedly involved $1.9 billion and contributed to the collapse last year of a bank with 346 branches and a mortage-lending company in Florida.

Smaller schemes in cases outlined by federal prosecutors today involved tens of millions of dollars, including a New Jersey real-estate Ponzi scheme that netted $45 million, a California mortgage-fraud scheme that netted at least $5.5 million, a second California scheme that netted an unknown amount and another real-estate fraud scheme in New Jersey that netted at least $5.5 million.

The youngest defendant charged in the cases was 27; the oldest 77.

Law-enforcement operations were centered in the states of Florida, New Jersey, Virginia and California, and involved multiple agencies working under the umbrella of the Financial Fraud Enforcement Task Force established by President Obama in November.

Lee Bentley Farkas, former chairman of Taylor, Bean & Whitaker (TBW), was arrested last night in Ocala, Fla. Farkas was named in a 16-count indictment filed in Virginia that accused him of presiding over a $1.9 billion fraud scheme that contributed to the failures last year of Colonial Bank, one of the 50 largest banks in the United States, and TBW, one of the nation’s largest privately held mortgage-lending companies.

“The fraud alleged here is truly stunning in its scale and complexity,” said Lanny Breuer, head of the Criminal Division of the U.S. Department of Justice.

“According to the indictment, the fraud began as early as 2002 in an effort to conceal significant TBW operating losses,” Breuer said. “It then evolved over the course of seven years as Mr. Farkas and his co-conspirators sought to misappropriate hundreds of millions of dollars from Colonial Bank and Ocala Funding, a mortgage lending facility that was controlled by TBW and financed by large banks.”

Farkas and unnamed coconspirators compounded the fraud by asking for bailout funds from the federal Troubled Asset Relief Program (TARP), prosecutors said.

“That [TARP] application included materially false information, and no TARP funds were released,” said Breuer.

The case was brought by the office of U.S. Attorney Neil MacBride of the Eastern District of Virginia.

“Taxpayers have paid a hefty price for the crimes related to the current financial crisis, and investors in Colonial and Ocala Funding were among those directly affected by this conspiracy,” said MacBride.

Neil Barofsky, the Special Inspector General of the TARP program (SIGTARP), said the banking scheme was unprecedented.

“Due to the efforts of SIGTARP agents, our law-enforcement partners, and the SEC, this scheme was stopped dead in its tracks, taxpayers were protected, and Lee Farkas has joined the growing list of financial industry executives who have been charged with TARP-related frauds,” Barofsky said.

In one of the separate alleged schemes in New Jersey, 28 people were charged. (See link below to read the names of the defendants in the cases, which involve at least $5.5 million.)

“These cases demonstrate just how pervasive the mortgage fraud problem is in New Jersey,” said U.S. Attorney Paul J. Fishman.  “Mortgage fraud is not limited to people who steal millions at a time.  It is more insidious.  It is more pernicious.  And it is more prevalent. Mortgage fraud is often done at a retail level, and involves many different people playing many different roles.  No matter what your role, if you participate in this kind of scheme, you will be held accountable.”

Among the 28 defendants are 12 real estate agents, four investors, four mortgage consultants, three individuals who allegedly created fraudulent documents, two accountants, a real-estate appraiser, a bank employee and a mortgage broker.

A veteran FBI agent described the New Jersey cases as a battle in an ongoing war against fraud.

“Today’s arrests do not signify the culmination of a single investigation, but rather serve as notice that law enforcement is aggressively pursuing mortgage fraud schemes in New Jersey,” said Michael B. Ward, special agent in charge.

In the second New Jersey case, Antoinette Hodgson, 58, of Montclair, was arrested on charges of operating a $45 million Ponzi scheme involving false tales of property-flipping. (See earlier story.)

Meanwhile, 13 people were charged in a California real-estate fraud cases. U.S. Attorney Benjamin B. Wagner announced the indictments of Hoda Samuel, 58, of Elk Grove, Calif.; Connie Devers, 40, of Elk Grove; Dana Faulkner, 43, of Oakland; Charles Robert Maness, 32, of Elk Grove; Tracy Painter, 50, of Lodi, Calif.; Sean Patrick Gjerde, 34, of Elk Grove; Ronald Burris, 36, of Elk Grove; Ygnacia Bradford, 34, of Oakland; Nicole Dawson, 40, of Oakland; and Daniel Harrison, 40, of San Diego.

Gjerde is an attorney;  Samuel a licensed real estate broker and the head of Liberty Real Estate and Investment Co. and Liberty Mortgage Co. of Elk Grove .

“From April 2006 through February 2007, Liberty was involved in approximately 30 residential real estate transactions in which the mortgage lenders were given false information as to the income of the purchasers and/or the value of the homes being purchased,” prosecutors said.

“At least 28 of the properties have since gone into foreclosure, resulting in a loss to lenders of over $ 5.5 million,” prosecutors said.

Also in California, Eric Ray Hernandez, 34, Monica Marie Hernandez, 29, and Evelyn Brigget Sanchez, 27 were indicted in a mortgage-fraud case. Each of the defendants lists an address in Bakersfield.

Link to names of New Jersey defendants.