Fraud and Prevention

Two California Real Estate Professionals Convicted in Fraud Scheme

By James Comtois
August 19, 2009

A federal jury convicted a Beverly Hills real estate agent and a licensed real estate appraiser on federal charges for their roles in a massive mortgage fraud scheme that caused more than $40 million in losses to federally insured banks.

After a five-week trial, the jury convicted Kyle Grasso, formerly of Santa Monica, and Lila Rizk, of Trabuco Canyon, of conspiracy, bank fraud and loan fraud charges for their roles in the mortgage fraud scheme. Additionally, Grasso was convicted of three counts of money laundering.

According to Thomas P. O'Brien, U.S. attorney for the Central District of California, the evidence presented at trial showed that Grasso and Rizk were part of a scheme that obtained inflated mortgage loans on homes in some of California's most expensive neighborhoods.

The scheme defrauded mortgage lenders by obtaining inflated loans on expensive homes in high-end California neighborhoods, including Beverly Hills, Bel Air, Holmby Hills, Malibu, Carmel, Mill Valley, Pebble Beach and La Jolla. Conspirators sent false documentation, including bogus purchase contracts and appraisals, to the victim banks to deceive them into unwittingly funding mortgage loans that were hundreds of thousands of dollars higher than the homes actually cost.

Lehman Brothers Bank alone was deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses.

The evidence presented at trial revealed that Grasso profited by collecting hundreds of thousands of dollars in commissions and concealed payments. The prosecution further presented evidence that Rizk profited by collecting hundreds of thousands of dollars in fees for providing inflated appraisals in the scheme.

Eight other real estate professionals who were part of the scheme previously pleaded guilty to federal felony charges for their roles. The defendants who previously pleaded guilty are scheme leader Charles Elliott Fitzgerald, Mark Alan Abrams, Nicole LaViolette, Jamieson Matykowski, Timothy Holland, Richard Maize, Thomas R. Schiff and L. Scott Robinson.

Fitzgerald was previously sentenced to 14 years in federal prison for his participation in the scheme. The remaining defendants are awaiting sentencing.

Another defendant who went to trial, Joseph Babajian, was acquitted on 13 criminal counts and the jury was unable to reach a verdict on eight additional counts. Judge Dean D. Pregerson declared a mistrial as to the eight counts.

Lehman Brothers Bank and RBC Mortgage Co. sued Fitzgerald, Abrams and others in federal court in Los Angeles in 2003 and obtained a receivership, temporary restraining orders and preliminary injunctions against them.

Judge Pregerson appointed David J. Pasternak as receiver to recover assets acquired with proceeds of the fraud. The receiver, as well as attorneys and forensic accountants employed by him, have cooperated extensively with the government's ongoing criminal investigation.

Judge Pregerson has scheduled sentencing for Grasso and Rizk on Jan. 29, 2010.