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  1. #1
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    Mar 2014
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    Default Conspiracy to Commit Mortgage Fraud

    In July of 2011 I was indicted for Conspiracy to Commit Mortgage Fraud and multiple counts of Wire Fraud surrounding the purchases of four homes I made in 2006. As it happened a friend and business associate of mine who was also on the board of directors of a software company I had founded owned a mortgage company. His company was large and employed over 100 people. In early 2006 he showed me an infomercial by Carlton Sheets that said if you purchased his DVD series he would show you how to purchase homes with no money down and receive cash at closing. My friend then showed me several episodes of Flip This House where the Montolongo Brothers in San Antonio, Texas would purchase dilapidated homes, spend a few weeks renovating them, and them would flip them for a profit. He told me what he was doing at his mortgage company was a combination of these two things only he had a "better mousetrap." He said that he was flipping homes worth hundreds of thousands of dollars and that the profits were higher as a result.

    At the time my software company was on the verge of massive success. We were in negotiations with several large companies to install our software in thousands of locations worldwide, and the contracts were worth tens of millions of dollars. Despite this fact we had been limping along in terms of being able to financially cover our operating expenses. My board of directors consisted of five investors whose responsibility it was to contribute to capital calls as needed to cover these expenses until our sales were able to do so on their own.

    One of my board members / investors - a guy who was my initial investor and to whom I had given a promissory note when he made his initial investment (I’ll call him Steve) – Steve and I had experienced a tumultuous business relationship due to the fact that he had had his attorney put a conversion clause into that promissory note that allowed him, without notice, to convert that “debt” to stock. Had he done so in the very beginning that would have made him sole owner of the company. As soon as I learned of its existence I had demanded that the note be replaced with one that did not have a conversion clause. That was two years earlier, in 2004. There had been a strong undertone of disdain ever since I had forced his hand that he never really got over. Despite this fact the company had moved forward.

    Well in the beginning of 2006 there had been a need for several capital calls, and this had resulted in a rift in the company. The guy who owned the mortgage company (I’ll call him Greg) had promised to loan the company a large sum of money in exchange for a short-term, high-interest note in lieu of bringing in an outside investor and diluting everyone’s ownership by 5%. Only he failed to deliver on his promise, which caused the need for the capital calls. And not only did he do this but he refused to participate in the capital calls forcing Steve to pick up his percentage of the contribution. This infuriated Steve. Shortly thereafter Steve approached me and said he was going to execute his conversion clause and take 100% ownership of the company in order to get Greg out. I told him that not only would doing so not be right but that the conversion clause had been removed and no longer existed anyway. I pretty much just blew him off – but he kept bringing it up. He said he was going to do this to get rid of Greg.

    The infighting had become a major distraction, and I had told Greg about Steve’s threats. So this was when Greg approached me with the idea of flipping several homes through his mortgage company as a way to generate money to be used to fund the company through to our next major contract so that there wouldn’t be a need for further capital calls. When he told me about the flipping opportunity I told him it just seemed too good to be true. I told him I was skeptical and didn’t want to get involved in something that I felt might not be legal. This is when he told me that his mortgage company was the safest mortgage company in the country and that there was absolutely NO possibility of anything illegal happening in his company. You see several years before he had started his mortgage company, while Greg was in college, he had been a DJ at many raves. This lifestyle had introduced him to Ecstasy and LSD drugs, and he had started selling them as a low-level dealer. This had landed him in the middle of a major federal drug case, and he had been convicted and had spent a few years in prison. After his release he was under the supervision of the federal probation department in what is called Post Release Supervision. He told me that the Mortgage Industry was wrought with fraud, and that when mortgage fraud occurs it is most often prosecuted in the federal justice system. Because of this he said that federal probation officers are well aware of what constitutes mortgage fraud and that his PO only allowed him to own / operate a large mortgage company with the stipulation that the federal probation office would have 100% access to every single transaction the company did. He told me that they provide access to his PO to every case file and that every single transaction was scrutinized.

    This convinced me that there was no possibility that anything illegal was happening with these transactions, so I agreed to purchase five homes and to use the proceeds from those transactions to cover the operating expenses of the software company in lieu of further capital calls. I felt that this would be a good solution to the infighting and would allow me to remain focused on the massive amount of work I had on my plate to get us through to fruition.

    Had I not been convinced that these transactions could not have involved anything illegal there is absolutely no way I would have agreed to do them. I would have simply insisted that my investors continue to fund the operations until one of the multimillion dollar contracts came through. At this time I had also sold 100% of my own equity in this company and had put the money I had received for doing so back into the company. I had negotiated with my partners that I would get 20% ownership back once we received contracts worth $1M. So it is totally illogical to believe I would have knowingly and intentionally committed a major felony that would have landed me in prison for decades a) knowing full well that the feds were looking closely at this mortgage company’s activities, and b) knowing that I could simply rely on my investors instead.

    Moreover, there were numerous times when I was at Greg’s office when his PO would visit, and he seemed perfectly comfortable with everything that was going on. There were literally hundreds of transactions just like mine occurring every week at this company.

    In the end I was the only person indicted. Even though I am the only person who could possibly NOT have known that these transactions were illegal I am the only person that has been indicted. And now the statute of limitations has lapsed, so I am the only person who ever WILL be indicted. These homes never were flipped. Instead he forced them into foreclosure leaving me in financial ruins. The multimillion dollar deals never came through because just before we closed our first deal Steve had approached me and said that he didn’t feel Greg should get 25% of a $20M contract so he was going to say he had executed his conversion clause before I had forced its removal and take control of the company as soon as we closed the deal. This caused me to believe that once he had control of the operating capital he would have unlimited resources with which to fight any legal attacks – so despite the fact that he would have been laughed out of court the chances of such litigation ever seeing the light of a courtroom was slim to none. I felt I needed to make a preemptive strike to keep him from doing this, so I met with Greg and told him I wanted to file a Motion for Declaratory Judgment from a local court to get them to say that Steve could not do what he was threatening to do. We met with Greg’s lawyer who told us it was not possible to ask a court to declare something illegal that hadn’t happened yet. So I asked if we could simply emulate the situation then and ask the court to declare what we had just done illegal and effectively also declaring that Steve could not do what he had been threatening to do.

    So we did just that. We gave each other promissory notes with conversion clauses and converted them to stock, moved all of the assets to a temporary holding company, and filed a Motion for Declaratory Judgment asking the court to tell us we could not do this. Only this is where everything fell apart. Steve filed a countersuit (obviously he had no idea what we were really doing – he assumed we were trying to steal the company just as the multimillion dollar deal came through and beat him to the punch). We were told that we had to disclose the pending litigation to any company we were entering into agreements with which caused all of the pending deals to be put on hold. Then my homes went into foreclosure and we didn’t have the money to continue with the litigation I had started. In the end Steve got a default judgment against me, and my entire financial world fell to ruins.

    So when the feds came knocking on my door and indicted me in July of 2011 I didn’t have the money to hire an attorney. Now I go to trial in a month in a fight for my life, and my public defender (not out of the FPD’s office but he is a CJA panel attorney) hasn’t even looked at my case yet as he has been involved in several murder trials in the year he has represented me. I found out through discovery that Steve had precipitated the criminal investigation by writing a 40-page diatribe to the FBI full of lies. I have a fairly strong case, but I am fearful that I will not be adequately represented at trial and that I may spend decades in a federal penitentiary.

    Either way I am planning to write a book about this bizarre case and the entire story of my life.

  2. #2
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    Jul 2010
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    8,006

    Default Re: Selective Prosecution = Persecution

    Can you do a Cliff Notes version cause not many people are gonna go through all that to filter out what's pertinent.

  3. #3
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    Sep 2011
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    Default Re: Conspiracy to Commit Mortgage Fraud

    Sounds like you will have plenty of time in prison to write your book.

  4. #4
    Join Date
    Mar 2014
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    Default Re: Selective Prosecution = Persecution

    LOL - Cliff Notes - I'm the only person indicted despite the fact that literally hundreds were investigated by the FBI and all were exactly the same as mine. Moreover, I was the only purchaser who was President / CEO of a software company that put me on a level where I could have possibly qualified for these homes. Most of the others were either unemployed, worked for the mortgage company, or were very questionable people in terms of their character. All did 3-5 home purchases.

    I have a strong case to present to demonstrate my innocence - hopefully justice will prevail next month at trial.

  5. #5
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    Mar 2014
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    17

    Default Re: Selective Prosecution = Persecution

    I'd actually like to debate the quality of CJA panel attorney representation. When an indigent defendant is represented in the federal system by an attorney out of the Federal Public Defender's Office they have an investigator with unlimited resources who can travel across the country if necessary to interview various witnesses. And the attorney is also able to work with virtually unlimited resources with only the need to justify to his or her boss any given expense. Whereas CJA panel attorneys must have every single expense approved by the court who is very reluctant to approve anything. Despite that some 40 people should have been interviewed as possible witnesses in my case I was ultimately forced to choose the top 5-6 as the court limited our investigation to just 36 hours.

    This is absurd. And my attorney will only get $9600 for taking my case to trial.

  6. #6
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    Mar 2014
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    Default Re: Conspiracy to Commit Mortgage Fraud

    Another interesting tid-bit with my situation. My CJA panel attorney - he's a former 35-year prosecutor who refuses to accept that I am innocent. Once I accepted the notion that the federal probation office was scrutinizing every single mortgage transaction to assure nothing illegal was happening I felt comfortable.

    Whenever something didn't seem right I would ask "Greg," and he would say, "oh, yes, this is standard practice and is perfectly legal." And in the Alice in Wonderland world of the sub-prime mortgage industry in 2006, where one could no longer rely on historical norms to determine what was right and wrong (stated incomes being accepted as just one example) I simply relied upon the professionals at the mortgage, lending, and title companies to assure that everything was legal.

    Christ, the same title company did all five mortgage closings - and they were all within 90 days - so obviously they knew that there had been a previous transaction within the past three years and that each home could not have been my primary residence. We even have the lady who did three of the four closings for which I've been indicted who is going to testify to the fact that not only did I not read the documents, nor did she explain them to me (she just told me where to sign), but that she didn't even know what a primary residency clause was. And yet my attorney STILL refuses to believe that I didn't read the documents.

    Anyway - thanks for sharing - I've been reading some of the other threads - interesting stuff.

    - - - Updated - - -

    Oh - and my final post (unless someone wants to discuss more) - "Steve" is good friends with the Koch brothers and was recently overheard bragging to someone at the Mexican Food restaurant he owns that Charles helped him "get me in trouble" with the feds. So that has me a little concerned since my attorney told me he was asked by my judge as a "personal favor" to take my case. I honestly believe there is a good chance I am going to end up having to represent myself at trial or I will be railroaded by my prosecutorial defense attorney.

  7. #7
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    Sep 2013
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    833

    Default Re: Conspiracy to Commit Mortgage Fraud

    No one here can help you. Mortgage fraud is going to be a fairly complex set of facts and issues and you posted scant few relevant ones in your post. I tried to read it but kept having to jump around to try and find anything beyond the other guys were bad and I had no idea I was doing wrong. Your indictment has specific claims the government will try to prove. It seems they will easily prove all the facts except for your claim you had no intent to defraud. Intent is always the hardest thing to prove without specific statements from you. Did you ever talk to the feds? Was there anything you said that could lead to evidence you had the intent to defraud?

    If not, they will use the facts and circumstances surrounding the events to show your intent. They will show you were in the middle of a scheme that was throwing a LOT of money around with a lot of promises and a lot of hiding the ball of where the money went and how it was accounted for. (I am surprised there is no tax issues involved with such a scheme.) They will say that anyone involved with such a complex set of events and representations made had to know precisely what was going on or willingly suspended knowing what was going on for benefit and that is enough to prove intent. (If a sketchy guy wants you to hide and sneak a "package" across the border, and you do not make a reasonable investigation about what is inside the package, do not think the government will be unable to prove you intended to smuggle drugs if you are caught.) Same here. You will need to show that asking "Greg" and accepting his answer and the fact some probation officer was involved in some way was a reasonable investigation. To me, that is nonsense. It is absurd to think one obtains a get out of jail free card by asking a co-conspirator and his probation officer if everything was all legal like and a pablum response of "standard practice and is perfectly legal" makes you good to go. Especially when you legally KNEW you were making FALSE representations. Signing a bunch of papers without reading them to obtain a bunch of money? Hmm...I am thinking that fits into my smuggling example pretty close.

    That everyone else was doing it was not a good excuse in kindergarten. It is not going to be worth your attorney's breath at trial.

  8. #8
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    Mar 2014
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    17

    Default Re: Conspiracy to Commit Mortgage Fraud

    Obviously I'm not going to post every detail of my defense in this forum. But the fact that I was made to believe that there couldn't be anything illegal as well as the fact that he actually was under federal supervision are two very compelling points. And your attempt to simply dismiss the importance of both is meaningless to me. I am confident that the facts will bear out my innocence. The reality is that I had zero personal gain from these transactions as every penny either went to paying things associated with the home purchases (home improvements, utilities, mortgage payments, etc.) - none of which would have existed had I simply not done them - or to expenses of the software company which had I known or even suspected that these transactions were illegal I would have simply told my investors to continue to fund the operations. There was absolutely no reason for me to knowingly and intentionally commit a fraud to cover the expenses for a company I no longer had any ownership in merely to stop infighting when I could have simply insisted that the investors do their job - which was to fund the operations.

    It's easy to sit behind the anonymity of a computer screen and play couch potato quarterback. At the end of the day I've been able to solidify a lot of strong evidence to substantiate the facts of what actually happened. As long as this trial isn't a kangaroo court trial where none of the evidence that supports my innocence is allowed in then I am confident I will be vindicated.

  9. #9
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    Sep 2013
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    Default Re: Conspiracy to Commit Mortgage Fraud

    Quote Quoting Persecuted
    View Post
    Obviously I'm not going to post every detail of my defense in this forum. But the fact that I was made to believe that there couldn't be anything illegal as well as the fact that he actually was under federal supervision are two very compelling points.
    Compelling? On what planet? "Made to believe", perhaps you mean you did not make a reasonable investigation. And, the fact he was "under federal supervision" is not going to be a factor in your favor, but against. You knew he was a criminal and you took his word everything was fine? Good luck with that. If that is your defense, I think you have a very large problem.
    And your attempt to simply dismiss the importance of both is meaningless to me.
    Obviously, your only chance is to prove you did not have the intent to defraud. With all you have written, you have not really made a clear case. And, that is without the other side bringing up some inconvenient facts you will have to explain.
    I am confident that the facts will bear out my innocence.
    Are you going to testify? Otherwise, your confidence means nothing. I suspect your attorney will not want you to testify.
    The reality is that I had zero personal gain from these transactions as every penny either went to paying things associated with the home purchases (home improvements, utilities, mortgage payments, etc.) - none of which would have existed had I simply not done them - or to expenses of the software company which had I known or even suspected that these transactions were illegal I would have simply told my investors to continue to fund the operations. There was absolutely no reason for me to knowingly and intentionally commit a fraud to cover the expenses for a company I no longer had any ownership in merely to stop infighting when I could have simply insisted that the investors do their job - which was to fund the operations.
    The reality is you hoped for personal gain. Just because you were caught before you made the gain does not take away your motive. That is unless your claim is you signed for multiple mortgages for a bunch of money because...well you really have not explained that have you? Why did you do it?
    It's easy to sit behind the anonymity of a computer screen and play couch potato quarterback. At the end of the day I've been able to solidify a lot of strong evidence to substantiate the facts of what actually happened. As long as this trial isn't a kangaroo court trial where none of the evidence that supports my innocence is allowed in then I am confident I will be vindicated.
    What is easy is to fool yourself into thinking that your failure to properly investigate the scheme is not what the courts call "willful blindness". Do I think you KNEW you were defrauding others? I do not really know. I know you had suspicions along the way, but I do not know. Do I think you did what a reasonable person would do in like circumstances to make certain you were not? No. You were signing too many papers and making too many representations for too much money with too many odd interactions of money flow to not investigate further.

    But, consider the facts you know without sharing for yourself against the law:
    http://scholarship.law.wm.edu/cgi/vi...ontext=facpubs

  10. #10
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    Mar 2014
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    17

    Default Re: Conspiracy to Commit Mortgage Fraud

    Look at it this way -

    What if a mortgage company and a title company were intent on committing fraud in order to perpetuate a substantial volume of transactions to support their massive overheads? Isn't it obvious that they could get the overwhelming majority of their clients to sign documents that stated things like there hadn't been another transaction in the previous three years or that a home would be a primary residence (when there were five home purchases)?

    In this situation how would the home purchaser not be considered a victim of the fraud? That is what I am saying - I was a victim - not a co-conspirator.

    "Greg's" right hand man - I think his title was VP of something or other - has told our investigator that he was even caught forging people's signatures on loan applications.

    If I thought I would get some valuable feedback besides "you're guilty - rot in prison" then I'd submit the entirety of what the prosecution will present and what my defense will be. But I'd probably get scolded for posting a novel as I did after my initial post.

    For now I'll just share a few more of the plethora of points of my defense:

    1) In order to qualify for the mortgages I was told that I had to have an income of over $100k. I told him I didn't currently make that, so I wouldn't qualify. He said, "you just need to get the board to approve raising your salary - hell, we pay several of our employees more than that anyway - you should be making that anyway." I asked him how getting my salary approved now would allow me to qualify - he said these were sub-prime mortgages that only required a "stated income" and that as long as I was making that I would qualify.

    So I immediately called a board meeting wherein Greg presented the proposal of me doing the home flips as a stop-gap measure to cover the operating expenses in lieu of further capital calls. At the meeting one of our board members - someone who was an 83 year old commercial realtor who had over 40 years of experience - asked the same question I'd asked, "if we approve his salary increase today how will that allow him to qualify - won't he need several years of tax returns to substantiate his income?" To which Greg replied, "no - these are sub-prime mortgages which only require a "stated income." This satisfied this man as to the legality of the mortgages which even gave me a further level of comfort. I told the board that if they didn't approve my salary increase then I would not do the mortgages because I refused to sign something that wasn't true. That meeting was recorded, and I have a copy of the recording. The board approved my salary increase, and I was paid the increased salary in subsequent paychecks.

    2) There are many examples of how my behavior was not reflective of someone who was knowingly and intentionally committing a fraud but the exact opposite. First, if I was going to commit a fraud why ask the board for a salary increase? Why not simply sign a mortgage application stating that I made that salary? Second, I made several mortgage payments on each home. If I was going to commit a fraud for profit why would I have done this? Third, I spent tens of thousands of dollars making improvements to each home including major landscaping and pool repairs - again, why would I have done this? The previous owners of these homes did nothing to improve them. Fourth, I was told that I needed to live in each home for a short period of time and that I needed to stage them in order to sell them faster. So I actually purchased tens of thousands of dollars in furnishings and moved into each home for at least six weeks. Why would I have done this if I was committing a fraud?

    I could go on and on. Obviously this post is getting too long, so I won't.

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