Mortgage Broker Sentenced to 10 Years in Prison for Massive Fraud Scheme

PITTSBURGH—A resident of New Brighton, Pennsylvania has been sentenced in federal court to 10 years of imprisonment and five years of supervised release on his conviction of conspiracy to commit bank fraud, mail fraud, and wire fraud and money laundering conspiracy United States Attorney David J. Hickton announced today.

United States District Judge David S. Cercone imposed the sentence on Michael Staaf, 42.

According to information presented to the court, Staaf operated Beaver Financial Services, which was a mortgage broker business, and several other companies that owned and managed real estate. The investigation has revealed that Staaf and several other individuals engaged in a large-scale mortgage fraud and money laundering scheme involving tens of millions of dollars and dozens of mainly commercial properties. One aspect of the scheme involved the purchase of properties owned by entities that Staaf controlled through an employee. The purchases were financed through loans. In connection with the loan applications, Staaf and others submitted fraudulent information related to the financial position of the borrower/purchaser, fraudulent appraisals that overstated the value of the collateral, and other documents that contained other material misrepresentations. There were also second loans associated with some of the properties in which Staaf and others refinanced the earlier purchases.

The investigation further revealed that, particularly in connection with commercial properties, Staaf engaged in a scheme in which he would “sell” commercial property owned by an entity he controlled to another entity that he controlled at highly elevated prices. The purchases were financed through fraudulent loan applications and through the submission of fraudulent documents, such as tax returns, rent rolls, leases, financial statements, and appraisals. The investigation revealed that Staaf directed the closing agents at U.S. Settlement Services to misdirect funds directed to payoff existing liens on properties to Staaf, and, in turn, Staaf deposited those funds into various entities’ bank accounts controlled by Staaf.

The investigation further revealed that Staaf altered invoices directed to one of the entities controlled by Staaf by inflating the cost of the work listed on the original invoices to make it falsely appear as though improvements had been made to the properties serving as collateral for the loans.

In terms of the money laundering, the investigation revealed that Staaf and his co-conspirators used various means to conceal the source and ownership of the illegally obtained money. Basically, nothing was in Staaf’s names, but all of the money eventually went to his benefit. He used nominee accounts, shell corporations, and other schemes to conceal his ownership of the proceeds of the fraud and to make if more difficult to track the proceeds of the fraud.

Assistant United States Attorney Brendan T. Conway prosecuted this case on behalf of the government.

U.S. Attorney Hickton commended the Mortgage Fraud Task Force for the investigation leading to the successful prosecution of Staaf. The Mortgage Fraud Task Force is comprised of investigators from federal, state, and local law enforcement agencies and others involved in the mortgage industry. Federal law enforcement agencies participating in the Mortgage Task Force include the Federal Bureau of Investigation; the Internal Revenue Service-Criminal Investigation; the United States Department of Housing and Urban Development-Office of Inspector General; the United States Postal Inspection Service; and the United States Secret Service. Other Mortgage Fraud Task Force members include the Allegheny County Sheriff’s Office; the Pennsylvania Attorney General’s Office, Bureau of Consumer Protection; the Pennsylvania Department of Banking; the Pennsylvania Department of State, Bureau of Enforcement and Investigation; and the United States Trustee’s Office.

Twice Convicted Sex Offender Sentenced to 33 Years in Prison for Advertising Child Pornography

BALTIMORE—U.S. District Judge Ellen B. Hollander sentenced Matthew Sluss, age 36, of Rawlings, Maryland, today to 33 years in prison followed by lifetime supervised release for advertising child pornography through an Internet file sharing program.

The sentence was announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.

“Two prior convictions for sexually abusing children did not deter Matthew Sluss from using the Internet to contact other pedophiles and produce child pornography, so now he will spend most of his remaining years in federal prison where he will pose no danger to children,” said U.S. Attorney Rod J. Rosenstein.

According to his plea agreement, Sluss had previously been convicted of two offenses related to the sexual abuse of two minor boys and was required to register as a sex offender. Sluss was a widespread Internet user of a publicly available peer-to-peer file sharing network and was involved in the advertising and distribution of child pornography. According to his plea, in 2009, the FBI Philadelphia Division began an undercover investigation into a user of a file sharing program, later identified as Sluss, who was sharing more than 115,000 files. The FBI browsed through the content of the shared files and observed child pornography images and hundreds of videos with titles indicative of child pornography. During November and December 2009, the FBI downloaded 108 images and one video that contained visual depictions of minors engaging in sexually explicit conduct. At that time, Sluss was residing in Denver, Colorado and a search warrant was executed at his home. Law enforcement seized multiple computers and hard drives from the residence. Sluss advised the agents that he was previously employed as a network administrator; that he hosted his own mail server and website; and that some or all of the data on his computers and hard drives was encrypted to protect the “documents” and prevent anyone without the appropriate password from viewing the files. A forensic review of the computers and hard drives revealed that much of the data was encrypted.

By February 2010, Sluss had moved to his parents’ home in Rawlings, Maryland, and on February 8, 2010, registered as a sex offender with Maryland’s Sex Offender Registry, as required due to his previous convictions.

In spring and summer 2010, five separate law enforcement officers working in an undercover capacity determined that Sluss was downloading and sharing large amounts of child pornography over a publicly available file sharing program. The FBI’s Miami, Buffalo, Sacramento, and Baltimore Divisions, as well as the Toronto, Canada Police Service, all downloaded child pornography being shared by Sluss over the Internet. Video surveillance was conducted at Sluss’s residence in August and September 2010, during which Sluss was observed sitting at his computer in his bedroom, using the file sharing program and downloading images and videos of child pornography.

On September 15, 2010, the FBI executed a warrant at the Sluss home. Just prior to the execution of the warrant, Sluss was observed sitting at his computer in his bedroom using the file sharing program. As agents entered the residence, Sluss attempted to block the agents’ entrance at the kitchen door. As the agents began to enter, Sluss ran towards his bedroom, where he was stopped by an agent who entered the residence through Sluss’ bedroom window.

When law enforcement agents viewed Sluss’s computer, the computer was logged onto the file sharing program and investigators were able to view the recent chat history between Sluss and his “friends” on the file sharing program, as well as to access much of the data on Sluss’s various computers. One of the computers wired to Sluss’ bedroom was located in the rear of the crawl space under the first floor of the residence. Investigators were able to view and copy most of the data contained on this computer, which revealed over 25,000 files containing images and video of child pornography. One of the computers in Sluss’s bedroom contained encrypted volumes.

According to the plea agreement, the file sharing program used by Sluss contains a “chat” feature that allows the user to communicate with others who use the program either through “private” or “public” chats. A review of Sluss’ computer revealed numerous “private” and “public” chats from Sluss using the file sharing program in which he encourages the production, transportation, and distribution of child pornography. Specifically, Sluss encouraged his “friends” to make videos of boys engaged in sexually explicit activity by webcam, and share those videos with Sluss.

For example, in early September 2010, Sluss posted the following messages: “I don’t want teens... But I’m not giving out the private shares unless I get similar back... preteen...” and “And again, im looking for stuff that is very recent. im spending HOURS each day... getting boys to go private for me i want the same.” In several messages to “friends” Sluss described videos of specific boys that he was willing to share. Law enforcement located folders on Sluss’ computer titled in the names of the boys Sluss described in the chats, which contained images of boys engaged in sexually explicit conduct.

This case was brought as part of Project Safe Childhood, a nationwide initiative launched in May 2006 by the Department of Justice to combat the growing epidemic of child sexual exploitation and abuse. Led by the United States Attorneys’ Offices and the Criminal Division’s Child Exploitation and Obscenity Section, Project Safe Childhood marshals federal, state, and local resources to locate, apprehend, and prosecute individuals who sexually exploit children, and to identify and rescue victims. For more information about Project Safe Childhood, please visit www.usdoj.gov/psc For more information about Internet safety education, please visit www.usdoj.gov/psc and click on the tab “resources.”

United States Attorney Rod J. Rosenstein commended the FBI for its work in the investigation and the Toronto Police Service, Allegany County Sheriff’s Office, and the Allegany County Police Bureau for their assistance. Mr. Rosenstein thanked Assistant U.S. Attorney Paul E. Budlow, who prosecuted the case.

Jury Finds Two Guilty in Cocaine Trafficking Scheme

PITTSBURGH, PA—After deliberating two hours yesterday, a federal jury of six men and six women found Bradley Barndt and Franco Badini guilty of one count of violating federal narcotic laws, United States Attorney David J. Hickton announced today.

Bradley Barndt, 26, of Somerset, Pa., and Franco Badini, 39, of McKees Rocks, Pa., were tried before United States District Judge Terrence F. McVerry in Pittsburgh. Also, on Aug. 8, 2011, a co-defendant, David Curran, 28, of Upper St. Clair, Pa., pleaded guilty to four counts before Judge McVerry.

According to Assistant United States Attorney Craig W. Haller, who prosecuted the case, the evidence presented at trial and during the plea hearing established that Barndt, Badini, and Curran, from January 2009 to Dec. 15, 2009, conspired with others to distribute and possess with intent to distribute cocaine. In addition, on Aug. 21, 2009, Oct. 3, 2009, and Oct. 29, 2009, Curran distributed cocaine.

Judge McVerry scheduled sentencing for Barndt and Badini on Dec. 1, 2011. Curran is scheduled for sentencing on Dec. 9, 2011. The law provides for a total sentence of 10 years to life in prison, a fine of $4,000,000, or both. Under the Federal Sentencing Guidelines, the actual sentence imposed is based on the seriousness of the offense and the criminal history, if any, of the defendant.

Pending sentencing, the court continued Barndt’s and Curran’s detention and revoked Badini’s bond.

The Drug Enforcement Administration including Task Force Officers Nick Falascino, Matt Truesdell, and Eric Harpster; the Pittsburgh Bureau of Police; the Pittsburgh Division of Weed and Seed; the Allegheny County Sheriff’s Office; the Pennsylvania State Police; the Bureau of Alcohol, Tobacco, Firearms, and Explosives; the United States Marshals Service; and the Federal Bureau of Investigation conducted the investigation leading to the prosecution of Barndt, Badini, and Curran.

New Castle Man Sentenced to 41 Months in Prison for Fraud and Money Laundering

PITTSBURGH—A resident of New Castle, Pa., has been sentenced in federal court to 41 months in prison and three years' supervised release on his conviction of bank fraud, mail fraud and money laundering, United States Attorney David J. Hickton announced today. He was also ordered to pay more than $300,000 in restitution.

Senior United States District Judge Gustave Diamond imposed the sentence on Nicholas DeRosa, 65.

According to information presented to the court, the Lawrence County Housing Authority, under the direction of then Lawrence County Treasurer Gary Felasco, either lent or made a grant of $200,000 to Affordable Housing of Lawrence County, a then newly formed not‑for‑profit entity. Affordable Housing's purported purpose was to purchase homes, fix them up, and then rent or sell them to the elderly or disabled. In 2004, Affordable Housing hired Robert Ratkovich, the president of New Castle City Council and a maintenance employee for the Lawrence County Housing Authority, as a consultant at $45 an hour. Ratkovich, among other things, was to search for suitable homes for Affordable Housing to purchase as part of its purported mission.

After Affordable Housing paid Ratkovich approximately $60,000 in consulting fees, Ratkovich recommended that Affordable Housing purchase seven properties. Four of the seven properties were owned or associated with DeRosa, former member of New Castle City Council, the now retired Assistant Superintendent of the New Castle Area School District, and well‑known local power broker. Two of the other properties were owned by DeRosa's cousin, and the seventh property was owned by one of DeRosa's longtime friends. Many of these homes were in dreadful condition, and Ratkovich recommended these homes despite the availability of homes in better condition and for less money.

Affordable Housing lacked sufficient funds to purchase these homes, and therefore, through Ratkovich, it applied for a loan through First Commonwealth Bank, a federally insured financial institution. Anthony J. Staph, Jr., the son of one of DeRosa's friends, submitted fraudulent appraisals of the properties that drastically overstated the values of most of the homes. Had this case gone to trial the government would have presented evidence in the form of the testimony of Ratkovich and Felasco that DeRosa directed that Staph provide the fraudulent appraisals.

Staph is the Vice‑President of Castle Realty Appraisal Services, Inc. On October 17, 2010, Castle Realty Appraisal Services pleaded guilty to a bank fraud based on its submission, through Staph, of the fraudulent appraisals.

In December 2005 the loan closed. First Commonwealth financed the majority of the purchases through a $250,000 loan, and Affordable Housing contributed approximately $90,000 toward the purchases. DeRosa received his money at the closing. By January 2006, most of the Board from Affordable Housing had resigned. By March 2006, Affordable Housing defaulted on the loan. In September 2006 Affordable Housing auctioned all but one of the properties. First Commonwealth received pennies on the dollar when Affordable Housing auctioned off the properties.

At trial, the government would have presented evidence that Affordable Housingwas simply a mechanism to get money to corrupt politicians like Felasco and Ratkovich, and more importantly, to get money to DeRosa. The buyers of the properties, other than DeRosa himself, were required, as part of the deal for getting rid of their properties, to kick back money to DeRosa. None of the kick back payments were disclosed on the settlement statements approved by First Commonwealth Bank, as required, nor were the kick backs disclosed in the Sales Agreements that were provided to the Bank. Thus, the Bank was led to believe that the sales prices were actually higher than the true sales prices.

Originally, 14 properties were to be purchased by Affordable Housing, but First Commonwealth Bank would only approvea loan that would allow Affordable Housingto purchase seven. At trial, the government would have presented evidence that DeRosa decided which properties to purchase, and he decided how much Affordable Housing was going to pay for those houses. The government would also have presented evidence that when Ratkovich asked DeRosa about the appraisals, knowing that they would have to be overstated to get the loan approved, DeRosa assured Ratkovich that the appraisals would support the values submitted.

The appraisals prepared by Staph contained numerous misrepresentations related to, among other things, the conditions of the properties, improvements to the properties, and the neighborhood. The appraisal for one of the properties indicated that the property was occupied, when, in fact, the property had not been occupied for years. Staph also ignored more comparable properties in order to support his fraudulently elevated values of the properties.

In one of the properties owned directly by DeRosa and his partner (

217 East Wallace Avenue

), the property was in deplorable condition. The appraisal for this property was dated Nov. 11, 2005. This property was condemned by the City of New Castle on Nov. 21, 2005, just 10 days later. According to the appraisal, however, there were no problems with the condition of this property. Staph rated the condition of this property as average and failed to note a number of severe problems with the property that led to its condemnation.

Another glaring omission from the appraisals was the accumulated trash in at least one of the properties. After the majority of the Board resigned, one of the few remaining officers inspected the properties and noted a huge accumulation of trash at least one of the properties. The remaining officer used some of the little remaining funds from Affordable Housing to hire a company to dispose of the trash. Ten dumpster loads of trash were removed from five of the properties, but there is no mention of this issue in the appraisals despite representations that Staph had inspected the interiors of the properties. In total, Staph's appraisals valued the seven properties at $350,000. An expert hired by the government prepared reports indicating that the values of those properties was approximately $200,000.

As set forth above, Ratkovich had a consulting contract with Affordable Housing in which he was to be paid $45 an hour. Ratkovich received approximately $60,000 pursuant to this consulting agreement, but did not work anywhere close to the number of hours that would have been required to earn $60,000. The government would have presented evidence at trial that a portion of the $60,000 was paid to DeRosa pursuant to an ongoing agreement to share funds from criminal activities, only some of which are specifically charged in the Superseding Indictment.

As part of his consulting activities, Ratkovich was tasked with locating properties for Affordable Housing to purchase. He, of course, did not do a real search for appropriate properties, but, at DeRosa's insistence, recommended that Affordable Housing purchase the seven properties referred to above. Originally there were going to be fourteen, but First Commonwealth Bank would not fund a loan that large. The government would have presented evidence at trial that the sales prices agreed to were not the product of arms length negotiations, but that Ratkovich simply accepted the sales prices DeRosa demanded. In addition, as discussed above, some of the sellers agreed to pay kickbacks to DeRosa.

Despite those facts, Ratkovich presented his recommendations to the Board of Directors of Affordable Housing as if these properties were the product of a true search, and that the sales prices were negotiated at arms length. He failed to disclose to them the true situation with these properties. Based on Ratkovich's recommendation, the Board approved the purchase of the seven properties, leading to the financial downfall of Affordable Housing.

As far as the Money Laundering Conspiracy charge, the participants in the conspiracy, including DeRosa, Ratkovich and Felasco, funneled some of the money from the above‑described schemes through a series of transactions to Felasco's attorney. There is no suggestion that the attorney knew that the fund he received were illegally obtained funds.

Felasco was, at that time, facing state corruption charges. In summary, the co‑conspirators arranged for cash from the transactions to be deposited into the account of an individual who ran a business that received cash receipts. That individual then forwarded money to Felasco's attorney. The idea of depositing the money into the account of this individual was to disguise the illegal nature of the funds and its connection to them, and try to make it look like legitimate money. The participants in the conspiracy were motivated to pay Felasco's attorney fees in connection with his state case to encourage Felasco not to reveal their involvement in the fraud schemes outlined above and a series of other fraud schemes.

Assistant United States Attorneys Brendan T. Conway and James T. Kitchen prosecuted this case on behalf of the government.

U.S. Attorney Hickton commended the Mortgage Fraud Task Force for the investigation leading to the successful prosecution of DeRosa.

The Mortgage Fraud Task Force conducted the investigation that led to the prosecution of DeRosa. The Mortgage Fraud Task Force is comprised of investigators from federal, state and local law enforcement agencies and others involved in the mortgage industry. Federal law enforcement agencies participating in the Mortgage Task Force include the Federal Bureau of Investigation; the Internal Revenue Service ‑ Criminal Investigation; the United States Department of Housing and Urban Development, Office of Inspector General; the United States Postal Inspection Service; and the United States Secret Service. Other Mortgage Fraud Task Force members include the Allegheny County Sheriff's Office; the Pennsylvania Attorney General's Office, Bureau of Consumer Protection; the Pennsylvania Department of Banking; the Pennsylvania Department of State, Bureau of Enforcement and Investigation; and the United States Trustee's Office.

Mortgage industry members with knowledge of fraudulent activity are encouraged to call the Mortgage Fraud Task Force at (412) 894‑7550. Consumers are encouraged to report suspected mortgage fraud by calling the Pennsylvania Attorney General's Consumer Protection Hotline at (800) 441‑2555.