Insurance Premium Fraud Robert Kohn (Sentence: pending) Action Date: July 21, 2010 Location: Charleston, SC On July 21, 2010, a federal court jury in Charleston, South Carolina, convicted Robert Kohn, an insurance consultant, of one count of mail fraud after a two-day trial. According to the testimony in the case, Kohn advised a Charleston business, Knight's Services, to fraudulently report its payroll and operations on workers' compensation year-end audits to Companion Property & Casualty Company in 2002, 2003 and 2004. In 2004, Knight's Services reported approximately $173,000 in payroll when the actual payroll was over a million dollars. Knights' Services also reported that it did not do any work in shipyards or on ships, when it actually regularly worked on ships. By lying about this work, Knight's avoided the U.S.L.& H. surcharge on the policies. In the three years, Knight's evaded approximately $300,000 in premium. Kohn was paid a fee of $10,000 in 2004 to provide the false payroll figures to Companion at audit. Kohn had been convicted 20 years earlier in a public corruption case known in South Carolina as "Operation Lost Trust." Roy Knight, the principal of Knight's Services, previously pled guilty in the scheme and testified against Kohn. The government was represented by Assistant U.S. Attorney Winston D. Holliday, Jr. Health Care Fraud Baskaran Thangarasan (Sentence: 57 months, Restitution/Fines/Penalties/Settlements Paid: $2.3 million) Action Date: June 14, 2010 Location: Farmington Hills, MI On June 14, 2010, Baskaran Thangarasan of Farmington Hills, Michigan, was sentenced in federal court to 57 months in prison for his participation in a fraudulent physical therapy scheme. U.S. District Court Judge Sean Cox in the Eastern District of Michigan sentenced Thangarasan to three years of supervised release following his prison term and ordered Thangarasan to pay $2.3 million in restitution, jointly with co-defendants. Thangarasan pleaded guilty on Decrmber 9, 2009, to one count of conspiracy to commit health care fraud. According to information contained in plea documents, Thangarasan, a licensed physical therapist, admitted that he began working in approximately February 2003 as a contract therapist for a co-conspirator who owned and controlled several companies operating in the Detroit area that purported to provide physical and occupational therapy services to Medicare beneficiaries. According to his plea documents, Thangarasan admitted that he, his co-conspirator and others created fictitious therapy files appearing to document physical and occupational therapy services provided to Medicare beneficiaries, when in fact no such services had been provided. According to court documents, the fictitious services reflected in the files were billed to Medicare through sham Medicare providers controlled by co-conspirators. Thangarasan also admitted that during the course of the scheme, he signed approximately 1,011 fictitious physical therapy files indicating that he had provided physical therapy services to Medicare beneficiaries, when in fact he had not. Thangarasan admitted that he was paid approximately $50 for each file that he falsified. Thangarasan also admitted that between approximately September 2003 and May 2006, he falsified physical therapy files that supported claims to the Medicare program totaling approximately $5 million. Medicare paid approximately $2.3 million on those claims. Thangarasan admitted that, throughout the conspiracy, he was fully aware that Medicare was being billed for physical therapy services that he falsely indicated he had performed. This case was prosecuted by Assistant Chief John K. Neal and Trial Attorneys Gejaa T. Gobena and Stephanie Hays of the Criminal Division’s Fraud Section as well as former Special Assistant U.S. Attorney Thomas W. Beimers. The case was investigated by the FBI and HHS-OIG, and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of Michigan. Securities and Investments Rothstein Scott (Sentence: 50 years) Action Date: June 9, 2010 Location: Miami, FL On June 9, 2010, Scott Rothstein was sentenced in federal court in Miami, Florida to 50 years in prison for defrauding investors of $1.2 billion. Rothstein was convicted on charges of conspiracy to commit bank transfer fraud, money laundering and criminal conspiracy. He was formerly the head of a major law firm in Ft. Lauderdale, Florida. The government had recommended a 40-year sentence, but Judge James Cohn made an upward departure from the recommendation citing Rothstein's forgery of a judge's signature and attempts to corrupt the judiciary. “These actions constitute the most egregious wrongs a licensed attorney can commit,” Cohen said. “There can be no conduct more reviled.” Rothstein forged a judge's signature to convince a client he had won a case that he had actually lost. Rothstein admitted that he and others solicited investors to invest in civil case settlement funds. He used the investment funds to finance a lavish life style. Many of his cars and properties and boats were auctioned off in May, 2010, including a Lamborghini Murcielago that sold at auction for $382,000, a Ferrari Spyder that sold for $165,000 and an 87-foot yacht that sold for $2.51 million. Florida's Verified Complaint Rule Law Offices of David Stern Action Date: May 17, 2010 Location: Bradenton, FL On May 6, 2010, a Circuit Judge for the 12th Judicial Circuit in Bradenton, Florida, dismissed a foreclosure action due to an incompletely verified complaint. The Complaint was filed by the Law Offices of David Stern, one of the largest foreclosure mills in Florida. The Court stated that, effective February 11, 2010, the Florida Supreme Court changed the Florida Rules of Civil Procedure, to require verified complaints in foreclosure actions. This change came about because many of the large foreclosure mills, including the Law Offices of David Stern, were filing non-sensical complaints, where the plaintiff could not establish that it owned the mortgage and note in question. In hundreds of cases, the documents submitted inexplicably showed that the plaintiff acquired the mortgage and notes months AFTER the foreclosure action was initiated. According to a study of hundrds of actions filed after the effective date of the amendment, done by researcher and activist Lisa Epstein, (Foreclosure Hamlet) the Stern firm has consistently ignored the Supreme Court rule. The purpose of the new requirement according to the Supreme Court, and as cited in the 12th Circuit Court decision, was "to prevent the wasting of judicial resources and harm to defendants resulting from suits brought by plaintiffs not entitled to enforce the note." In a related matter, the Florida Attorney General's office announced that it was investigating foreclosure law firms that use their own employees to sign mortgage documents as if they were officers of mortgage companies and servicers. The Stern firm also regularly uses its own employees signing as MERS officers, without disclosing to Courts or homeowner defendants that these signers are law firm employees. Health Care Fraud ABC Med-Way, Inc. Flor Crisologo J & F Community Medical Center MSG Investment & Services Corp. Action Date: May 14, 2010 Location: Miami, FL On May 14, 2010, a Miami-area resident who owned and operated an HIV infusion clinic was arrested today and charged for her alleged participation in a $23 million HIV infusion Medicare fraud scheme. An indictment charged Flor Crisologo, 58, with one count of conspiracy to defraud the United States, to cause the submission of false claims to the Medicare program, and to pay health care kickbacks; one count of conspiracy to commit health care fraud; and three counts of submitting false claims to the Medicare program. Crisologo also is charged with one count of conspiracy to launder the proceeds of her crimes and four counts of money laundering. Crisologo made her initial appearance in U.S. District Court in Miami before Magistrate Judge William C. Turnoff. According to the indictment, Crisologo was the owner and operator of J & F Community Medical Center Inc. The indictment alleges that Crisologo submitted approximately $23 million in false and fraudulent claims to the Medicare program for HIV injection and infusion services purportedly provided through J & F. According to the indictment, Crisologo hired a physician at J & F and caused the physician to order unnecessary tests, sign false medical analyses and diagnosis forms, and authorize treatments to make it appear that medical services were being provided to patients who were Medicare beneficiaries. The services included medically unnecessary injection and infusion therapies. The indictment alleges that Crisologo and her co-conspirators paid Medicare beneficiaries kickbacks to induce the beneficiaries to claim they received legitimate services at the clinic when in fact the HIV infusion services were either not provided or were not medically necessary. According to the indictment, Crisologo engaged in a scheme to launder the proceeds of the fraudulent Medicare claims by, among other things, transferring thousands of dollars in proceeds to two shell corporations that she owned and controlled, ABC Med Way Inc., and MSG Investment and Services Corp. The maximum sentence for each count of conspiracy to defraud the United States and filing false claims is five years in prison. The maximum sentence for each count of conspiracy to commit health care fraud, conspiracy to commit money laundering and money laundering is 10 years in prison. The indictment seeks forfeiture of assets held by the defendant. This case is being prosecuted by Trial Attorney Joseph S. Beemsterboer of the Criminal Division’s Fraud Section. The case was investigated by the FBI and HHS-OIG, and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Miami. Health Care Fraud Yasmanny Benavides (Sentence: 144 months, Restitution/Fines/Penalties/Settlements Paid: $6,206,697) Reinaldo Guerra Lacary Medical Lily Orthopedic Action Date: May 14, 2010 Location: Miami, FL On May 14, 2010, Yasmanny Benavides was sentenced in federal court in Miami, Florid to 144 months in prison and ordered to pay restitution of $6,206,697 for a durable medical goods medical billing fraud scheme. According to the indictment and evidence admitted at trial, defendant Benavides controlled and operated Lacary Medical Services Equipment, Inc. that purportedly did business in Miami-Dade County providing durable medical equipment to Medicare beneficiaries. From July 2003, through December 2003, Benavides as President, Secretary, and Registered Agent of Lacary Medical, caused the submission of false and fraudulent claims to Medicare on behalf of Lacary Medical, in the amount of $4,865,970, seeking reimbursement for the cost of DME items and services that were not prescribed by doctors or provided as claimed. According to statements made in court, Defendant Benavides then controlled and operated Lily Orthopedic, Inc. that purportedly did business in Miami-Dade County providing durable medical equipment to Medicare beneficiaries. From December 2003, through August 2004, Benavides and co-conspirator Reinaldo Guerra caused the submission of false and fraudulent claims to Medicare on behalf of Lily Orthopedic, in the amount of $14,555,868, seeking reimbursement for the cost of DME items and services that were not prescribed by doctors or provided as claimed. Defendant Benavides came to the government’s attention during the investigation of All-Med Billing Corp. At sentencing, United States District Court Judge Joan Lenard noted the severe harm caused to the taxpayers as a result of defendant’s conduct in stealing over $6 million of funds dedicated to the care of the elderly and disabled, especially in light of the current health care funding issues that exist in this country. Mr. Ferrer commended the investigative efforts of the Federal Bureau of Investigation, and the U.S. Department of Health and Human Services, Office of the Inspector General. This case is being handled by Assistant U.S. Attorney Christopher J. Clark. Mortgage Fraud Sheldon Martin Monique Mitchell Action Date: May 13, 2010 Location: Plantation, FL On May 13, 2010, Monique Mitchell and Sheldon Martin pled guilty in federal court in West Palm Beach, Florida to one count of making false statements on a HUD-1 Real Estate Settlement Form in connection with a mortgage fraud scheme. Sentencing has been scheduled for July 21, 2010 before U.S. District Judge Donald Middlebrooks. According to records filed with the court and statements made during the plea hearing, defendant Monique Mitchell was employed by Attorneys Title Center, in Pembroke Pines. Defendant Sheldon Martin was a self-employed licensed mortgage broker in Plantation. At the plea, Mitchell and Martin admitted that they knowingly prepared a false HUD-1 Settlement Statement Form in connection with the January 2008 sale of a $1,250,000 home in Fort Lauderdale. The HUD-1 Form included false information to Regions Bank, the lender, about the down payment, the cash on hand at closing, and the amount repaid to the previous lender. In addition, the defendants concealed from Regions Bank money paid to The Pines Law Center at the closing. At sentencing, the defendants face a maximum statutory sentence of up to five years in prison. Co-defendant, attorney Michael Samuda, is scheduled for trial in June 2010. This case is being prosecuted by Assistant U.S. Attorney Jeffrey Kay. Securities and Investments Morgan Stanley Action Date: May 12, 2010 Location: New York, NY EDITORIAL: On May 12, 2010, Morgan Stanley's Chief Executive announced in response to a Wall Street Journal article that he was unaware of any criminal investigation by the Justice Department that his firm, like Goldman Sachs, misled investors about mortgage-backed derivative deals. The WSJ had reported that Morgan Stanley was the subject of such an investigation. In addition to determining whether the firm was betting against the very products it was promoting to investors, the Justice Department COULD investigate whether Morgan Stanley and other securities firms exercised secret control over the rating agencies, causing risky investments to get the highest ratings by these firms. The Justice Department COULD also investigate whether the mortgage-backed trusts put together by Morgan Stanley were comprised of much riskier mortgages than represented to investors. Another investigation COULD be conducted regarding the pay-outs from the insurance policies behind the CDOs and whether the servicing companies working for the trusts are collecting twice - from the insurance and from the foreclosures - and then turning around, acquiring the foreclosed properties for $10 - and profiting yet a third time. Investigators COULD even determine whether foreclosure mills working for trusts created by Morgan Stanley are now using forged proof of ownership to foreclose because Morgan Stanley never acquired the mortgages, notes and assignments they claimed to have in their vaults, backing the mortgage-backed securities. In the battle between the Justice Department and Wall Street, Goliath is in New York, not D.C. Mortgage Fraud SG Mortgage Securities, Series 2006-FRE2 Steven C. Baum, P.C. U.S. Bank, N.A. Action Date: May 12, 2010 Location: Brooklyn, NY On May 11, 2010, Judge Arthur J. Schack, Supreme Court, Kings County, New York, entered an order denying a foreclosure action with prejudice. The case involved a mortgage-backed securitized trust, SG Mortgage Securities Asset Backed Certificates, Series 2006-FRE2. U.S. Bank, N.A. served as Trustee for the SG Trust. See U.S. Bank, N.A. v. Emmanuel, 2010 NY Slip Op 50819 (u), Supreme Court, Kings County, decided May 11, 2010. In this case, as in hundreds of thousands of other cases involving securitized trusts, the trust inexplicably did not produce a mortgage assignment from the original lender to the securities company to the trust, despite numerous representations to the SEC that such assignments had been obtained and retained by the trust. Instead, the assignment relied upon by the plaintiff was one executed by Elpiniki Bechakas as assistant secretary and vice president of MERS, as nominee for Freemont. Judge Schack determined sua sponte that Bechakas was an associate in the law offices of Steven J. Baum, the firm representing the trustee and trust. Judge Schack recognized that the Baum firm was thus working for both the GRANTOR and GRANTEE. Judge Schack wrote, "The Court is concerned that the concurrent representation by Steven J. Baum, P.C. of both assignor MERS, as nominee for FREMONT, and assignee plaintiff U.S. BANK is a conflict of interest, in violation of 22 NYCRR § 1200.0 (Rules of Professional Conduct, effective April 1, 2009) Rule 1.7, "Conflict of Interest: Current Clients." The case thus presented an issue that foreclosure defense firms have raised repeatedly - the authority of the individuals signing mortgage assignments that are used by trusts to foreclose. It is widely reported that law firm employees sign as MERS officers, without disclosing to the Court or to homeowners that they are actually employed by the law firm, not MERS, and that the firm is being paid and working on behalf of the Trust/Grantee while the firm employee is signing on behalf of the original lender/Grantor. The Emmanuel case also involved an assignment of the mortgage without a corresponding assignment of the note. Judge Schack wrote: "MERS, as nominee for FREMONT, did not assign the note with the mortgage, but assigned, as noted above, the mortgage and "and the full benefit of all the powers and of all the covenants and Provisions therein contained" and "the Assignors beneficial interest under the Mortgage." This verbiage is not the note." Once again, as in numerous decisions in the past few years, Judge Schack's very careful reading and analysis on behalf of a pro se plaintiff showed that the entity attempting to foreclose took actions that were improper and possibly unethical. This is the most significant decision regarding mortgage assignments since the ruling of Massachusetts Land Court Judge Long in Ibanez invalidating retroactive assignments in Massachusetts. The practice of law firm employees signing as MERS officers, has finally been brought up for examination. Health Care Fraud Carlos Benitez Luis Benitez Nayda Freire (Sentence: 30 months, Restitution/Fines/Penalties/Settlements Paid: $7,992,391) Jose Garcia Global Med-Care Corp. Thomas McKenzie Action Date: May 11, 2010 Location: Miami, FL On May 10, 2010, Jose Garcia, 55, who has been a fugitive since 2008, was taken into federal custody yesterday at Miami International Airport. Garcia self-surrendered to FBI agents upon arrival in Miami. Garcia appeared in federal court in Miami on May 11, 2010, where U.S. Magistrate Judge William C. Turnoff ordered him detained pending the resolution of the charges against him. Garcia and his co-defendant, Nayda Freire, were charged in 2008 with allegedly conspiring between April 2003 and November 2003 to submit approximately $10.9 million in false and fraudulent claims to the Medicare program for HIV infusion services allegedly provided at Global Med-Care Corp., an HIV infusion clinic operated by Garcia and Freire. According to the indictment, Garcia, Freire and their co-conspirators allegedly retained and trained physicians and physicians’ assistants as part of the scheme at Global Med-Care to make it appear that legitimate HIV infusion and medical services were being provided. The indictment also alleges that Garcia and Freire laundered the proceeds of their crimes by sending the proceeds to sham management and marketing companies owned and controlled by their co-conspirators. The charges in the indictment are merely allegations and Garcia is presumed innocent until proven guilty. Garcia and Freire were charged with one count of conspiracy to defraud the United States, to cause the submission of false claims to the Medicare program and to pay health care kickbacks; one count of conspiracy to commit health care fraud; one count of conspiracy to launder the proceeds of their crimes; and four counts of money laundering. Garcia also was charged with four counts of submitting false claims to the Medicare program. Freire pleaded guilty on Aug. 28, 2008, to one count of conspiracy to defraud the Medicare program, and was sentenced on Nov. 12, 2008, by U.S. District Court Judge Adalberto Jordan to 30 months in prison. In addition to the prison term, Judge Jordan sentenced Freire to two years of supervised release following her release from prison and ordered her to pay $7,992,391 in restitution to the Medicare program. In her plea, Freire acknowledged that between April 2003 and November 2003, she and others conspired to file $10.9 million in false claims to the Medicare program for HIV infusion services that were not provided and were not medically necessary. In addition, court documents explain how the patients were paid cash kickbacks in return for agreeing to allow Global Med-Care to bill Medicare for the unneeded services. Freire admitted that after payments from Medicare were made into the bank accounts of Global Med-Care, she and others transferred approximately $6 million of the fraud proceeds to sham management, marketing and investment companies owned and operated by co-conspirators Carlos, Luis and Jose Benitez. Co-conspirators Carlos and Luis Benitez and Thomas McKenzie were charged separately with health care fraud and money laundering crimes in an indictment unsealed on June 11, 2008. According to the separate indictment, these co-conspirators allegedly provided the money and staff necessary to open Global Med-Care; the Medicare patients whom the clinic would bill to the Medicare program; and transportation for the HIV patients who visited the clinic. That indictment also alleges that Carlos and Luis Benitez were the true owners of Global Med-Care. The three Benitez brothers and McKenzie were charged with participating in the commission of approximately $109 million in HIV infusion fraud and money laundering through Global Med-Care and 10 other HIV infusion clinics. On Sept. 18, 2008, McKenzie pleaded guilty to one count of conspiracy to commit health care fraud and one count of submitting false claims to the Medicare program, and also admitted his role in a $119 million HIV infusion fraud scheme. McKenzie was sentenced by U.S. District Judge Alan S. Gold on Dec. 18, 2008, to 14 years in prison in connection with his role in the HIV-infusion Medicare fraud scheme. In addition to the prison sentence, McKenzie was ordered to serve three years of supervised release following his prison term and pay $84 million in restitution to the Medicare program. The Benitez brothers remain fugitives. Today’s results were announced by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida; John V. Gillies , Special Agent-in-Charge of the FBI’s Miami field office; and Special Agent-in-Charge Christopher Dennis of the HHS Office of Inspector General (OIG), Office of Investigations Miami office. The case was prosecuted by Deputy Chief Hank Bond Walther and Trial Attorney N. Nathan Dimock of the Criminal Division’s Fraud Section, and investigated by the FBI and the HHS Office of Inspector General. The case was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Florida. Securities and Investments Abacus 2007-AC1 Goldman, Sachs & Co. Fabrice Tourre Action Date: April 16, 2010 Location: New York, NY On April 16, 2010, the SEC filed securities fraud charges against Goldman, Sachs & Co. ("GS&Co") and a GS&Co employee, Fabrice Tourre ("Tourre"), for making material misstatements and omissions in connection with a collateralized debt obligation ("CDO") GS&Co made and marketed to investors. ABACUS 2007-AC1, a mortgage-backed trust, was tied to the performance of subprime residential mortgage-backed securities. Abacus was made and marketed in early 2007 when the United States housing market was beginning to show signs of distress. Mortgage-backed trusts like ABACUS 2007-AC1 contributed to the financial crisis. According to the Commission's complaint, the marketing materials for ABACUS 2007-AC1 all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC ("ACA"), a third party with expertise in analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. ("Paulson"), with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO played a significant role in the portfolio selection process. After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps ("CDS") with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure. Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future. GS&Co did not disclose Paulson's adverse economic interest or its role in the portfolio selection process in the term sheet, flip book, offering memorandum or other marketing materials. The Commission alleges that Tourre was principally responsible for ABACUS 2007-AC1. According to the Commission's complaint, Tourre devised the transaction, prepared the marketing materials and communicated directly with investors. Tourre is alleged to have known of Paulson's undisclosed short interest and its role in the collateral selection process. He is also alleged to have misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson's interests in the collateral section process were aligned with ACA's when in reality Paulson's interests were sharply conflicting. The deal closed on April 26, 2007. Paulson paid GS&Co approximately $15 million for structuring and marketing ABACUS 2007-AC1. By October 24, 2007, 83% of the RMBS in the ABACUS 2007-AC1 portfolio had been downgraded and 17% was on negative watch. By January 29, 2008, 99% of the portfolio had allegedly been downgraded. Investors in the liabilities of ABACUS 2007-AC1 are alleged to have lost over $1 billion. Paulson's opposite CDS positions yielded a profit of approximately $1 billion. The Commission's complaint, which was filed in the United States District Court for the Southern District of New York, charges GS&Co and Tourre with violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. §77q(a), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b) and Exchange Act Rule 10b-5, 17 C.F.R. §240.10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest and civil penalties from both defendants. Identity Theft Sharon Palmer (Sentence: 84 months) Action Date: April 16, 2010 Location: Dallas, TX On April 16, 2010, Shannon Palmer, 42, of Dallas, was sentenced by U.S. District Judge Reed C. O’Connor to the statutory maximum sentence of seven years in federal prison, without parole, for mail theft and aggravated identity theft. Palmer, who had been in custody since her arrest in June 2009, pled guilty to the two felony offenses in January 2010. According to documents filed in the case, in April 2009, Palmer stole a Neiman Marcus credit card from the mailbox of an individual, “R.O.,” in Plano, Texas. Palmer then used that credit card to conduct more than 13 transactions at Neiman Marcus in Northpark Mall and Willow Bend Mall, representing herself as “R.O.,” and charging more than $10,000 on the stolen credit card. Palmer even made payments on this individual’s credit card, using bank accounts belonging to other victims. On June 2, 2009, after purchasing two pairs of sunglasses for nearly $1000 at the Northpark Mall Neiman Marcus, store loss prevention employees identified and detained Palmer. When questioned, Palmer said that “R.O.” had given her permission to use the card. In her purse, Palmer had a checkbook belonging to someone else, “H.B.,” along with that person’s address, telephone number, social security number, date of birth and driver’s license number and expiration date handwritten on the checkbook. She also had several credit and debit cards in the names of other individuals, including “H.B.” She was arrested by officers with the Dallas Police Department, but bonded out of jail. Palmer was arrested again on the morning of June 25, 2009, by officers with the Irving, Texas, police department who were responding to a call from the Extended Stay motel on Green Park Drive in Irving. The caller reported seeing a suspicious person, who was not staying at themotel, sitting in a black Nissan in the motel’s parking lot. The caller reported that the individual in the car, later identified as Shannon Palmer, had approached a motel employee, offering him $900 to cash a $1000 check. When questioned, Palmer gave officers a bogus name and date of birth, but allowed officers to search her purse. They found numerous credit cards for Palmer, as well as for an individual, “E.A.” Palmer then furnished her true identity and she was arrested for failing to identify herself. Palmer’s car was searched and officers found two laptop computers, a large quantity of mail, and things contained in the mail, addressed to or from numerous individuals other than Palmer. Items appeared to be organized in files by victim name and type of identifying information such as “SSNs” and “CCs.” Officers also found a box of checks that Palmer had stolen from “E.A.’s” mailbox in Dallas. Palmer had between 250 and 300 pieces of mail not addressed to her and admitted to law enforcement that she had stolen mail as recently as the previous day. According to the factual resume filed in the case, the investigation identified 269 victims of mail theft, with an actual and intended loss suffered by the victims of at least $120,000. The case was investigated by the U.S. Postal Inspection Service and the Dallas and Irving Police Departments. Assistant U.S. Attorney Mary Walters was in charge of the prosecution. Securities and Investments Integrity Financial AZ, LLC Walter Knitter Robert Koeller Steven Long Stanley Paulic Action Date: April 15, 2010 Location: Cleveland, OH On April 15, 2010, the SEC filed a civil injunctive action in U.S. District Court for the Northern District of Ohio, charging four individuals and an Arizona-based limited liability company with securities fraud for making false and misleading statements about the safety and performance of a real estate-based investment program. The Commission also charged the defendants with unlawfully selling securities in an unregistered offering and with failing to comply with the broker registration provisions of the federal securities laws. The complaint in the Commission's action alleges that Steven R. Long and Stanley M. Paulic — who formed and owned Integrity Financial AZ, LLC — and Walter W. Knitter and Robert C. Koeller — two salesmen who helped attract investors — raised more than $8 million between February 2008 and September 2009, in a fraudulent unregistered offering of promissory notes purportedly secured by real estate in Tonopah, Arizona, a town 55 miles west of Phoenix. The offering attracted at least 58 investors. More than half of the investors reside in northern Ohio, and several are associated with St. Paul's Croatian Church in Cleveland. The complaint alleges that Integrity Financial AZ, Long, Paulic, Knitter, and Koeller violated Sections 5 and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks permanent injunctions from further violations of those provisions, as well as judgments ordering payment of disgorgement, with prejudgment interest thereon, and civil penalties against each of the defendants. The Commission's complaint alleges that the defendants promised investors "guaranteed" annual returns of between 10 and 20 percent and encouraged investors to use self-directed IRA, 401k, and other funds to build homes in Arizona that were to be inhabited by qualified tenants who could be converted to buyers. Investors were assured that their investments were "secured," "low risk," insured by the Federal Deposit Insurance Corporation (FDIC), and protected by homeowner's insurance. The complaint also alleges, however, that there was no FDIC or insurance protection for the investments. Instead, the investments bore considerable risk tied to the floundering Arizona real estate market, which has been hard hit by the recession and declining property values. The complaint further alleges that investors were told that 100% of their investments would go to build homes, although, in reality, only a fraction of the money was used for that purpose and the bulk of it was diverted to Long's other real estate interests; commissions and other payments made to the defendants; and Ponzi-scheme-like payments to earlier investors. Mortgage Fraud American Home Mortgage Servicing Deutsche Bank National Trust Company Docx, LLC Lender Processing Services Action Date: April 13, 2010 Location: Jacksonville, FL On April 12, 2010, Lender Processing Services closed the offices of its subsidiary, Docx, LLC, in Alpharetta, Georgia. That office was responsible for pumping out over a million mortgage assignments in the last two years so that banks could foreclose on residential real estate. The law firms handling the foreclosures were retained and largely controlled by Lender Processing Services, according to a Sanctions Order entered by U.S. Bankruptcy Judge Diane Weiss Sigmund (In re Niles C. Taylor, EDPA, Case 07-15385-sr, Doc. 193). Lender Processing Services, the largest "default management services company" in the country, has already made at least partial admissions that there were faults in the documents produced by the Docx office - although courts and homeowners were never notified. According to Lender Processing Services, over 50 major banks use their default management services. The banks that especially need the services provided by Lender Processing Services include Deutsche Bank, Citibank, Wells Fargo and U.S. Bank, acting as trustees for mortgage-backed securitized trusts. These trusts, in the rush to securitize mortgages and sell them to investors, often ignored the critical step of obtaining mortgage assignments from the original lenders to the securities companies to the trusts. Now, years later, when the companies "servicing" the trusts need to foreclose, they retain Lender Processing Services to draft the missing documents. The mortgage servicers, including American Home Mortgage Services, Saxon Mortgage Services, and American Servicing Company, never disclose that the trusts are missing essential documents - they just rely on Lender Processing Services to "fix" the problems. Although the Alpharetta office has been closed, Lender Processing Services continues to mass produce "replacement" assignments from its Jacksonville, Florida, and Dakota County, Minnesota offices. Law firms retained by Lender Processing Services also often use their own employees, posing as officer of Mortgage Electronic Registration Systems, to produce the needed Assignments. Since the vast majority of homeowners do not retain counsel in foreclosure proceedings, this flawed system has worked very effectively for the last few years, with courts all over the country rarely questioning why so many mortgage companies had officers in Alpharetta, Georgia, or why Trusts that closed in 2005 and 2006 were just obtaining Mortgage Assignments in 2009 and 2010. Most courts never even questioned why companies long-dissolved, such as Option One, could still be executing documents years after the dissolution. While the closing of the Alpharetta office may be a sign that these fraudulent activities will finally be exposed and addressed, for the time being, it is just a matter of an unsatisfactory end of one small facet of an enormous and far-reaching problem. Mortgage Fraud Lender Processing Services Action Date: April 4, 2010 Location: Jacksonville, FL In the first 3 days of April, 2010, the Wall Street Journal and the Jacksonville Business Journal both reported that Lender Processing Services was the subject of a federal criminal investigation involving a subsidiary company, Docx, LLC in Alpharetta, Georgia. A representative of the company reportedly acknowledged the investigation. Foreclosure defense blogs, and this website, have reported some of the problems with mortgage assignments prepared by Docx including Assignments where the grantor or grantee was described as "Bogus Assignee for Intervening Asmts" or "A Bad Bene." Docx also produced many assignments with an effective date of 9/9/9999. In other cases, the effective date was listed as 1950. Other Assignments listed the amount of the original mortgage as $.00 or $.01. Still other assignments were missing signatures. The Docx office has produced over one million mortgage assignments in the last few years and filed these assignments in recorders' offices across the country. How many Assignments were defective? Did any foreclosures occur based on the defective documents? Were court clerks notified of the defective assignments? Were borrowers notified? Were mortgage companies and banks notified? The company disclosures to date raise even more questions regarding the role of document mills in the national foreclosure crisis. Courts and litigants everywhere will be waiting for more complete disclosures. MORTGAGE DOCUMENTS Action Date: March 12, 2010 Location: WEST Palm Beach, FL CALL FOR MORTGAGE ASSIGNMENTS & AFFIDAVITS - March 12, 2010 - Researchers at Fraud Digest are comparing the job titles on Mortgage Assignments and Affidavits of the individuals listed below. If you have any Mortgage Assignment or Affidavit in Support of Summary Judgment in a Foreclosure action signed by any of the following individuals, please scan the document(s) and send it as a pdf. attachment to szymoniak@mac.com. This request is for research regarding mortgage-related documents. The individuals named below are not accused of wrong-doing or fraudulent activity: Christina Allen; Scott Anderson; Brent Bagley; China Brown; Eric Friedman; Linda Green; Ely Harless; Korell Harp; Laura Hescott; Erica Johnson-Seck; Dennis Kirkpatrick; Topako Love; Jessica Ohde; Shelly Scheffey; Keri Selman; Kathy Smith; Roger Stout; Eric Tate; Tywanna Thomas; Linda Thoresen. Mortgage Fraud DOCX, LLC FEDERAL HOME LOAN MORTGAGE ASSN. Action Date: March 9, 2010 Location: West Palm Beach, FL ON MARCH 9, 2010, researchers for Fraud Digest easily found at least 10 Assignments, for combined loan amounts well over $2 million, with the Assignment Effective Date listed as 9/9/9999. These were all prepared by Docx, LLC in Alpharetta, Georgia, a subsidiary of Lender Processing Services in Jacksonville, FL. These are the same "document preparers/officers of too many banks" that prepared and filed Assignments where the grantor or grantee was listed as "Bogus Assignee for Intervening ASMTS" and also the same people who listed the grantor or grantee as "A Bad Bene." All of these documents are witnessed and notarized (by other Docx employees). Fraud Digest researchers are now attempting to quantify the number of Assignments (in the hundreds or more likely thousands) where MERS is stated to be the original mortgagee. If the assignment is not effective until 9/9/9999, many homeowners will be able to stay in their homes a VERY long time. Each of these assignments effective in 9999 was to the Federal Home Loan Mortgage Assn. Securities and Investments Excel lease Fund, Inc. Benny Lee Judah (Sentence: 25 years, Restitution/Fines/Penalties/Settlements Paid: $59,802,581) Action Date: March 8, 2010 Location: Lubbock, TX On March 5, 2010, Benny Lee Judah was sentenced in federal court in Lubbock Texas, to the statutory maximum of 300 months (25 years) in federal prison and ordered to pay $59,802,581.06 in restitution. Judah has been in federal custody since he pleaded guilty in November, 2009, to felony offenses stemming from his defrauding at least 250 investors of nearly $60 million. Judah, who operated numerous restaurants and related businesses, including Excel Lease Fund, Inc., pleaded guilty to one count of money laundering and one count of sale and delivery after sale of unregistered securities. At the sentencing hearing, it was noted that the offense involved more than 250 victims; the offense involved a prior specific judicial injunction; the offense substantially endangered the solvency or financial security of 100 or more victims; the offense involved a violation of securities law; at the time of the offense, the defendant was a person associated with an investment advisor; and the defendant obstructed and impeded the administration of justice. On February 1, 2001, in U.S. District Court for the NDTX, Judah and his company, Excel, were subjects of a final judgment of permanent injunction filed by the Securities and Exchange Commission (SEC) that permanently restrained and enjoined them in the offer or sale of unregistered securities, in providing through the mails any communication employing any scheme to defraud or material misrepresentation, or from engaging in any transaction or practice which would operate as a fraud or deceit on any purchaser. Judah and Excel were ordered to pay a $50,000 civil penalty as part of the Court’s final judgment, and Judah was put on notice of the illegal fraudulent securities violations in which he had engaged. Judah, an accountant by education and training, is not a licensed securities broker. Since at least 2001, he has sold Excel debentures, guaranteeing a high rate of return. Essentially, however, while purporting to manage and operate the Excel leasing business, Judah was actually operating a Ponzi scheme. Judah admitted that from October 2005 until April 2009, he schemed to fraudulently obtain $50,162,707 from victim investors in Excel who purchased Excel debentures. He operated this scheme successfully until April 21, 2009, when the SEC filed a civil Complaint against him and Excel alleging violations of federal securities laws. That same day, the Court granted the SEC’s motion to appoint a receiver, signed an order freezing their assets, and signed an injunction prohibiting them from taking further actions in violation of federal securities laws. As part of his scheme, Judah misrepresented the viability of Excel by failing to disclose the true and actual use of investor funds, and the true financial condition of Excel, thus allowing him to conceal, disguise and convert investor monies for unauthorized purposes. He generated false documents consisting of prospectuses, balance sheets, income statements and interest accrual letters that were represented to be true in order to perpetuate the image of a successful company. He mailed these fraudulent documents to investors and received approximately $50,162,707. He represented to investors that Excel was profitable, when it was not, and grossly overstated the value and nature of Excel’s assets. After an investment was made, Judah would mail the victim investors the debentures for the investor to sign and then the investors would mail the signed debentures back to Excel and Judah. Oftentimes, Judah would mail false account statements to the investors showing that their investments were earning interest at the 10% rate he had represented. Regarding the money laundering charge, Judah knew that while conducting and attempting to conduct his financial transactions, that the property involved in those financial transactions represented proceeds of his unlawful activity of mail fraud. Judah admitted using investor proceeds in a manner grossly inconsistent with representation he had made. For example, he lost at least $5 million of the proceeds by “day trading” and used investment proceeds to provide related-party loans to himself and to other businesses he controlled. The case was investigated by the Lubbock offices of Internal Revenue Service - Criminal Investigation and the FBI. Assistant U.S. Attorneys Dick Baker and Ann C. Roberts of the U.S. Attorney’s Office in Lubbock prosecuted the case. Mortgage Fraud Florida Civil Procedure Rules Action Date: February 11, 2010 Location: Tallahassee, FL On February 11, 2010, the Florida Supreme Court addressed the problem of widespread mortgage foreclosure fraud BY LENDERS in Florida by amending certain rules of civil procedure. (See, Nos. SC09-1460, SC09-1579, Supreme Court of Florida.) The rule changes were recommended by the Task Force on Residential Mortgage Foreclosure Cases. By administrative order on March 27, 2009, the Task Force was "established to recommend to the Supreme Court policies, procedures, strategies, and methods for easing the backlog of pending residential mortgage foreclosure cases while protecting the rights of parties." In re Task Force on Residential Mortgage Foreclosure Cases, Fla. Admin. Order No. AOSC09-8, at 2 (March 27, 2009). Rule 1.110(b) was amended to require verification of mortgage foreclosure complaints involving residential real property. According to the Court, the primary purposes of this amendment are (1) to provide incentive for the plaintiff to appropriately investigate and verify its ownership of the note or right to enforce the note and ensure that the allegations in the complaint are accurate; (2) to conserve judicial resources that are currently being wasted on inappropriately pleaded "lost note" counts and inconsistent allegations; (3) to prevent the wasting of judicial resources and harm to defendants resulting from suits brought by plaintiffs not entitled to enforce the note; and (4) to give trial courts greater authority to sanction plaintiffs who make false allegations. The rule change was necessary because lenders in Florida, as in every other state, have filed hundreds of thousands of foreclosure cases without any legal authority. In cases after case, where the lenders do not have the documents to prove that they own the mortgage and note, they have lied to the courts and falsely alleged: 1) we own the note; 2) we had possession of the note; 3) we lost the note. In truth, the lenders never obtained valid assignments of these notes from the loan originators in the rush to securitization, to bundle residential mortgages as investments. In court proceedings, the lenders hired certain "document preparers" - including law firms - to "create" these critical missing Assignments, but in many cases, the documents were dated subsequent to the date the foreclosure case was filed, creating a tremendous strain on the courts. Many foreclosure defense advocates, while applauding the rules changes, have criticized the fact that the Supreme Court did not provide relief to the thousands of homeowners who are at risk of losing their homes because of forged and fabricated mortgage assignments filed with the courts in foreclosure actions by lenders. Many expected the Court to stay all foreclosure actions where the mortgage assignments were dated subsequent to the date the action was filed. Without such widespread relief, victims of the Assignment scheme must prove fraud on a case-by-case basis, most often in courts where the judges have already declared themselves unwilling to consider the issue of fraudulently created mortgage assignments. Securities and Investments Eli Goldshor (Sentence: 18 months) Harvard Learning Center Judith Massaro (Sentence: 3 years' probation) Donald Platten (Sentence: 262 months) Action Date: February 9, 2010 Location: Boca Raton, FL Donald Platten, of Boca Raton, Fla., was sentenced today by Judge Donald Middlebrooks in West Palm Beach, Florida to 262 months in prison, to be followed by 3 years’ of supervised release for securities fraud, mortgage fraud, and tax fraud, the Justice Department and Internal Revenue Service (IRS) announced. The Court will schedule a hearing within the next 90 days to determine the amount of restitution owed to the victims. In August 2009, Platten was convicted of conspiracy to commit securities fraud, six counts of securities fraud, conspiracy to commit wire fraud, and impeding the internal revenue laws. Platten was acquitted of eight additional counts of securities fraud. According to the indictment and evidence introduced at trial, Platten was the president of Harvard Learning Centers Inc., a Florida corporation also located in Boca Raton. Harvard Learning changed its name several times and claimed to be involved in several different business ventures. From 2004 to 2007, Platten caused Harvard Learning to issue more than $1 million in stock to his wife, his sister, Judith Massaro, his ex-sister-in-law, and his limousine driver, Eli Goldshor, supposedly as repayment of promissory notes, even though Platten knew that the promissory notes were fraudulent and the company did not owe these individuals the money reflected on the promissory notes. Goldshor, the limousine driver, kicked back most of the proceeds from the sale of the stock to Platten and for Platten’s benefit. In this manner, Platten caused Harvard Learning to issue stock to repay his own obligations and to enrich himself, his relatives and others. Platten also caused a subsidiary of Harvard Learning to pay the personal expenses of himself, his wife, his mother, his sister, and his teenage son. According to the indictment and evidence introduced at trial, Platten failed to file corporate federal tax returns for Harvard Learning for the years 2004 through 2007 and failed to file his personal federal tax returns for the years 2004 and 2005. For the year 2006, Platten failed to report on his personal tax return the income that he received as a result of Harvard Learning's stock issuances and payment of his personal expenses. According to the indictment and evidence introduced at trial, Platten caused Goldshor to purchase a house and obtain a mortgage by providing false information about his income and assets in order to conceal Platten's ownership of the house in Boca Raton. The day after he purchased the house, Platten caused Goldshor to execute a quit claim deed transferring his interest in the property to Platten's wife. Two individuals who testified for the government in the trial of Platten in August 2009 had pleaded guilty to criminal charges relating to their misconduct. Eli Goldshor, Platten’s former limousine driver, pleaded guilty to charges of conspiracy to commit securities fraud and willfully failing to file tax returns. In September 2009, Goldshor was sentenced by Judge William Zloch in Ft. Lauderdale, Florida to 18 months in prison for his role in the offense. Judith Massaro, Platten’s ex-sister-in-law, pleaded guilty to obstructing the internal revenue laws. In December 2009, Massaro was sentenced by Judge Thomas Whelan in San Diego, California to three years probation. Tax Division Trial Attorneys Steven D. Grimberg, Gregory R. Bockin, and Kenneth C. Vert, prosecuted the case.