CHICAGO—A Chicago area real estate
investor, the president of a Colorado real estate financing company, and a
licensed appraiser were indicted for allegedly participating in a scheme to
fraudulently attempt to obtain mortgage loans totaling more than $750,000 by
selling three residential properties in Chicago to nominee buyers, federal law
enforcement officials announced today. The charges result from Operation
Madhouse, an undercover investigation in which a cooperating individual posed
as someone who could assist in structuring fraudulent loan transactions through
a bank contact who would approve bogus loan applications on behalf of nominee
buyers.
Defendant Paul Demos, 66, of Chicago,
the licensed appraiser, was arrested this morning and was released on his own
recognizance after pleading not guilty at his arraignment before U.S. District
Judge Amy St. Eve in Federal Court. Co-defendants Michael Fort, 42, of Hazel
Crest, an investor who owned multiple properties in Chicago; and Jeffrey Olson,
43, of Lakewood, Colorado, who was president of 1st Funding Source LLC, which
engaged in real estate financing, were not arrested and will be arraigned at a
later date.
Fort was charged with three counts of
bank fraud, and Demos and Olson were each charged with two counts of bank fraud
in an indictment returned by a federal grand jury on Tuesday and unsealed today
following Demos’ arrest. The arrest and charges were announced by Patrick J.
Fitzgerald, United States Attorney for the Northern District of Illinois;
Robert D. Grant, Special Agent in Charge of the Chicago Office of the Federal
Bureau of investigation; Barry McLaughlin, Special Agent in Charge of the U.S.
Department of Housing and Urban Development Office of Inspector General in
Chicago; and Alvin Patton, Special Agent in Charge of the Internal Revenue
Service Criminal Investigation Division in Chicago.
According to the indictment, the fraud
scheme involved a “double-closing” on a residence located at 5517 South Paulina
St. and the sale of residences located at 6845 South Morgan St. and 1241 North Monitor
Ave., all in Chicago, between June and September 2010. The defendants and
others allegedly fraudulently attempted to obtain loans by preparing and
submitting to an unnamed bank applications in the names of nominee buyers that
contained false information about the borrower’s employment, income, assets,
down payment, intention to occupy the residence, and the value of the property.
Regarding the Paulina “double-closing,”
the defendants and the undercover cooperating individual allegedly agreed that
Fort would “short sell” the residence to a nominee intermediate party, who
would immediately resell the property to a nominee buyer, with the second sale
financed by a fraudulently-obtained $295,850 loan. Fort allegedly hid
information from the short sale lender, including that Fort had arranged for an
immediate resale to a nominee buyer at a price significantly higher than the
short sale price and based on an inflated appraisal and that he would profit
from the resale.
The Morgan Street property was to be
sold to a nominee buyer financed by a fraudulently-obtained $300,600 loanand
the Monitor Avenue sale by Fort to a nominee buyer financed by a
fraudulently-obtained $203,700 loan, the indictment alleges. As part of the
scheme, Fort would pay a fee to the nominee buyers of the Paulina and Monitor
properties, it adds. In exchange, the nominee buyers would obtain the loans and
sign the documents at closings but would not occupy the residences or make
payments on the loans. Fort allegedly intended to keep the proceeds of the
fraudulently-obtained mortgages.
Demos allegedly provided the bank with
false appraisals that inflated the value of the Paulina and Morgan properties.
Olson allegedly provided the down payment funds for the nominee buyer of the
Morgan property, and agreed to provide the down payment and short sale funds
for the Paulina property. In September 2010, Fort and others appeared at the
closings for the sale of Paulina and Morgan properties, allegedly intending to
receive approximately $596,450 in fraudulently-obtained loan proceeds. Together
with the Monitor property, the defendants allegedly intended to fraudulently
obtain mortgages totaling more than $750,000.
The government is being represented by
Assistant U.S. Attorneys Tyler Murray and Christopher Stetler.
Each count of bank fraud carries a
maximum penalty of 30 years in prison and a $1 million fine, and restitution is
mandatory. If convicted, the court may impose an alternate fine totaling twice
the loss to any victim or twice the gain to the defendant, whichever is
greater. The court must impose a reasonable sentence under federal sentencing
statutes and the advisory United States Sentencing Guidelines.
The public is reminded that an
indictment contains only charges and is not evidence of guilt. The defendants
are presumed innocent and are entitled to a fair trial at which the government
has the burden of proving guilt beyond a reasonable doubt.
The charges are part of a continuing
effort to investigate and prosecute mortgage fraud in northern Illinois and
nationwide under the umbrella of the interagency Financial Fraud Enforcement
Task Force, which was established to lead an aggressive, coordinated, and
proactive effort to investigate and prosecute financial crimes.
Since 2008, approximately 200 defendants
have been charged in Federal Court in Chicago and Rockford with engaging in
various mortgage fraud schemes involving more than 1,000 properties and more
than $280 million in potential losses, signifying the high priority that
federal law enforcement officials give mortgage fraud in an effort to deter
others from engaging in crimes relating to residential and commercial real
estate.
The Financial Fraud Enforcement Task
Force includes representatives from a broad range of federal agencies,
regulatory authorities, inspectors general, and state and local law enforcement
who, working together, bring to bear a powerful array of criminal and civil
enforcement resources. The task force is working to improve efforts across the
federal executive branch and, with state and local partners, to investigate and
prosecute significant financial crimes, ensure just and effective punishment for
those who perpetrate financial crimes, combat discrimination in the lending and
financial markets, and recover proceeds for victims of financial crimes. For
more information on the task force, visit: www.StopFraud.gov.
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