Real Estate Investment Fraud News Stories 14

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REAL ESTATE INVESTMENT FRAUD NEWS

By Stephanie Ayres
22 November 2016
San Diego, California

Mazen Alzoubi, a purported real estate investor, was sentenced to 75 months in custody and payment of $2,506,414 of restitution for his role in a scheme to steal title to properties in Southern California by filing forged deeds and then trying to sell the properties before the owners, usually banks or government-sponsored entities, discovered the scheme and tried to stop the sale.

Alzoubi and his associates, Daniel Deaibes and Mohamed Daoud, used aliases, forged documents, forged notary seals, and sham front companies to conceal their own role as preparers and filers of the false documents they used to obtain what appeared to be clear title to properties.

According to a November 7 statement from the US Attorney’s office in San Diego, Alzoubi obtained sales proceeds of about $2.2 million from ten flips of stolen properties between 2012 and 2014. He pleaded guilty to one count of conspiracy to commit mail fraud and wire fraud, one count of mail fraud, two counts of aggravated ID theft, and one count of conspiracy to launder money.

Deaibes pleaded guilty to one count of mail fraud in March and was sentenced to 24 months in custody. Using an alias, he had posed as a seller of some of the properties in the scheme. Daoud pleaded guilty to one count of conspiracy to launder money in 2015 but fled the country before sentencing.

By Stephanie Ayres
3 June 2016
San Diego, California

The US Attorney’s office in San Diego announced on May 19 that Courtland Gettel, the former CEO of Variant Commercial Real Estate, and Jeffrey Greenberg, an Arizona attorney who did work for Variant, pleaded guilty in San Diego federal court to conspiracy and wire fraud for carrying out a large-scale theft-by-deed scheme (or in this case, theft by phony lien release) with multi-million-properties in upscale areas of San Diego County.

Here’s how it worked. Gettel and an associate would obtain a mortgage loan from a lender to purchase a property, sometimes by telling the lender that the property would be used as a luxury rental. Sometime after the sale closed, Gettel, with help from attorney Greenberg, would prepare false lien release documents that inaccurately showed that the mortgage loan had been paid off. They would record these fake documents with the county recorder, then take out a new loan from another lender, who would assume from the records on file with the county that Gettel and his associates owned the property free and clear.

According to the US Attorney’s May 19 statement, Gettel, Greenberg, and their associates carried out this scheme numerous times with a variety of properties and generated about $30 million in loan proceeds as a result of the filing of fraudulent property lien documents.

By the end of 2014, lenders were finding the fraudulent documents that had falsely extinguished their security interest in the properties purchased by Gettel and his associates, who responded by creating more false documents to support their claims of ignorance of the fraudulently-obtained mortgage loans.

In addition to this San Diego scheme with Gettel, Greenberg also entered a guilty plea to charges relating to a separate fraud scheme connected to his work for Variant Commercial Real Estate in Arizona. Greenberg and others generated another series of fake documents, such as invoices and expense reports, for renovation work they falsely claimed was performed on properties in the Variant portfolio. The tens of millions of dollars that were reportedly obtained through this activity were used for personal luxury spending.

Meanwhile Variant had filed Chapter 11 bankruptcy in August 2014 as it became involved in a dispute with a major creditor and also accused its former CEO Gettel in a 2015 lawsuit of stealing some $750,000 from the company and interfering with a court-ordered sale of some of Variant’s apartment properties. Variant also accused Gettel, Greenberg, and others of siphoning money from the company by submitting fake invoices for millions of dollars of renovation work that was never done.

By Stephanie Ayres
30 October 2016
New York, New York

Carlton P. Cabot, the head of a tenant-in-common (TIC) real estate investment scheme, was sentenced to ten years in federal prison, three years of supervised release, and payment of $17 million of restitution and asset forfieture, says an October 28 statement from the US Attorney’s office in Manhattan.

Between 2003 and 2012 Cabot Investment Properties LLC sponsored approximately eighteen TIC projects. Although the prospectus for the TIC entities stated that the company could only retain “excess rental income,” that is, what was left after payment of expenses and distributions to investors, the company was accused of transferring money from the TIC project accounts to Cabot Investment account, controlled by Carlton Cabot, who allegedly used these funds to sustain Cabot Investment Properties and for his own lavish personal spending.

Cabot and his co-defendant in the case, Timothy J. Kroll, who had been COO of Cabot Investment Properties, were said to have provided the TIC investors with “false and misleading reports,” according to a June 1 statement from the US Attorney’s office on the case.

When Cabot Investment Properties shut down in 2012, it owed some $17 million to investors, the sum of the amounts diverted by Cabot from the investor accounts. Cabot pleaded guilty to one count of securities fraud. Kroll entered his guilty plea in October 2015.

By Stephanie Ayres
15 September 2016
San Francisco, California

When Cedar Funding Mortgage Trust LLC collapsed in 2008 owing millions to over a thousand investors who believed they had secured interests in real estate projects that the company had loaned to, the company’s founder, David A. Nilsen of Monterey, California, filed bankruptcy. By the time Nilsen was indicted in a federal case in 2009, his associate, loan servicing manager and co-defendant in the criminal case, Manoel Errico, had disappeared.

Investors hadn’t waited for the bankruptcy to start filing lawsuits against Nilsen in state court. A Monterey County Superior Court judge appointed a receiver to take charge of Cedar Funding and determine the status of the numerous properties it had loaned against and the status of the investors’ interests in them.

Like many hard-money lenders, Nilsen had told investors their interests would be secured by fractional deeds of trust on the properties that were collateral for Cedar’s loans. The receiver discovered, however, that these interests had often not been recorded. Indeed Nilsen had been fined
$10,000 in 2005 by the California Department of Real Estate for failing to record deeds of trust in the investors’ names.

Nilsen’s failure to record the investors’ secured interests in the properties apparently opened the door to another tactic that complicated the ownership issue and led to additional legal wrangling. As early as 2004 most of Cedar’s loans were non-performing, according to the indictment filed against Nilsen.

Instead of foreclosing on the properties, Nilsen would sometimes try to take over the failing construction projects himself, apparently without telling investors. These attempts to salvage the investment projects were generally futile, and the defaults continued, leading to the company’s failure. Investors were also not told, said the criminal case, that some of the payouts to them were coming not from interest on Cedar Funding’s loans, but rather from monies received from new investors.

Nilsen pleaded guilty in October 2011 to conspiracy to commit mail fraud and wire fraud. He was sentenced in April 2012 to 97 months in prison, three years supervised release, and payment of $69,828,833 of restitution. His co-defendant, Manoel Errico, was arrested on an Interpol Red Notice in Argentina and was extradited to the US in Ausut 2016. He faces charges that include one count of conspiracy, eleven counts of mail fraud, eight counts of wire fraud, ten counts of securities fraud, and one count of aiding and abetting.

By Stephanie Ayres
30 June 2016
Miami, Florida

A scheme to convert rundown properties into luxury resorts that would purportedly yield an upfront “leaseback” payment amounting to from 15% to 20% of the sales price of a unit at the resort for investors was found to be a ponzi scheme.

According to a February 22 statement from the US Attorney’s office in Miami, the principals of the scheme called Cay Clubs Resorts & Marinas did not develop any of the resorts in the seventeen locations promised between 2004 and 2008 to investors who contributed some $300 million to the scheme.

Cay Clubs CEO Fred Clark schemed to conceal a cash shortage that developed in 2006 to get new loans from banks. He reportedly boosted sales by selling units to himself at inflated prices, resold the same units to other Cay Clubs insiders, had employees forge signatures and falsely notarize loan documents. Clark was said to have used some of the proceeds to continue making ponzi payments and otherwise keep the scheme going, but also managed to divert some $22 million of investor money for his personal use in maintaining a lavish lifestyle while investing in a gold mine, a coal project, and a rum distillery.

The criminal case also alleged that Clark tried to conceal these assets and gave false testimony to the SEC during its investigation of the scheme in 2011. He then apparently transferred several million dollars out of the country and fled, ending up in Panama, where he was arrested and deported to the United States in 2014.

In December 2015 Clark was convicted at trial on three counts of bank fraud, three counts of making false statements to financial institutions, and obstruction of the SEC’s investigation. He was sentenced to 480 months in federal prison, a money judgment of $303.8 million for the bank fraud, a separate judgment in favor of the SEC and forfeiture of certain assets.Two other Cay Club executives, Barry J. Graham and Ricky Lynn Stokes, were also convicted and sentenced.

Meanwhile the SEC had filed a parallel civil case over the Cay Clubs scheme, alleging Clark, Graham, Stokes, and two other participants should be forced to disgorge their illicit profits from the promotion. The federal district court ruled that the agency had waited too long to file its claims for disgorgement. This ruling was reportedly upheld by a panel of the US 11th Circuit Court of Appeals, which did note that, even though the disgorgement claims were stale-dated, the SEC could still seek an injunction as to future conduct for the Cay Club defendants.

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