LOAN BIZ A $102M FRAUD

LOAN BIZ A $102M FRAUD: DA
By DAREH GREGORIAN


July 9, 2009 --
A crooked mortgage brokerage house conspired with real-estate lawyers, appraisers and bank employees to scam banks out of $102 million, prosecutors said yesterday.

The alleged swindle, carried out by AFG Financial Group, is the largest such case for the Manhattan District Attorney's Office -- and DA Robert Morgenthau said the amount stolen may wind up doubling.

"We had to move now," Morgenthau said, because "we just couldn't let an enterprise like this continue."

The company and 13 people were indicted on charges including enterprise corruption, conspiracy and grand larceny. Another 12 -- including one of the crooked lawyers -- took guilty pleas, and most of those will get jail time, Morgenthau said.

The DA said the office's 10-month investigation into the Garden City, LI, company turned up a fraud lasting almost five years. He said the company was set up to be a criminal enterprise, and if it did any legitimate work, "it was by accident."

Morgenthau said the company hired people to find distressed residential properties in the metropolitan area, and "then engaged in a fraudulent scheme to steal millions of dollars from lending banks and elsewhere using sham sales of those properties."

The company hired recruiters to track down unwitting straw buyers for the properties, who were told they could make money on their investments and help distressed property owners at the same time, Morgenthau said.

AFG, meanwhile, arranged for mortgages for the buyers by turning in phony loan applications to the banks, and setting up bogus closings where everyone involved -- with the exception of the buyer -- was in on the scam, including the lawyers for the sellers and the buyers.

"Everybody was in on it," said another prosecutor, Andrew Kaufmann.

AFG would allegedly pocket the mortgage money, while the buyers would have their credit ruined when the mortgages were foreclosed by the banks.

"The sellers got bupkus [zilch]," said prosecutor Gary Fishman. "The sellers were ruined."

Most of the properties were overvalued, including one instance where an appraiser signed off on a vacant Bronx lot as being a $500,000, two-family home, Morgenthau said.

He noted that many of those involved in the scam were supposed to be "gatekeepers," and said it shows the need for massive regulatory reform.

Those indicted yesterday were charged with scamming $12 million in 19 transactions, but records seized by investigators show the company raked in well over $100 million.

AFG founders Aaron Hand, Eugene Culbreath and Eric Shields were arraigned last night. An employee of Countrywide Home Loans named Jeffrey Phelan was also indicted. Patrick Kuhl, an employee of New Century Mortgage Corp. -- which lost an estimated $32 million in the scam -- pleaded guilty to falsifying business records.

Other banks hit hard in the scam were Washington Mutual, Wells Fargo and Bank of America.

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