Fraud and Prevention

Stories on this page:

• Senate Approves Housing Bill, New Regulations Discussed by the Administration

• Virginia Woman Indicted in $132 Million Property Investment Fraud Scheme

• Former First Bank Mortgage President Indicted on Multiple Fraud Charges

More related stories

Senate Approves Housing Bill, New Regulations Discussed by the Administration

By Thomas J. Inserra
July 16, 2008

After parliamentary maneuvers delayed passage for weeks, the Senate late last week sent its approved version of the housing bill to the House of Representatives. This sets up the next round of negotiations on the measure, which is expected to be approved by both bodies by the end of the month. While President Bush has suggested he will veto such a measure, legislators in the House and the Senate are pressing to craft a bill acceptable to all.

Housing stimulus and foreclosure relief are the focus of the bill and it is clear that official Washington is paying attention to the calls from constituents, consumers and industry to address the worst housing and finance crisis in decades. The Senate bill, H.R. 3221, contains provisions for foreclosure relief designed to rescue up to 400,000 families by allowing them to refinance into more affordable loans. The Federal Housing Administration would be given authority to insure up to $300 billion in new loans, a part of the measure considered controversial by many as too expensive. This is one of the measures that postponed passage until after the Independence Day break.

Other provisions contain housing related tax breaks and credits for first-time homebuyers, clearly an effort to stimulate the sagging housing market. There is also funding for local communities to purchase foreclosed properties to stem blighted areas. Fannie Mae and Freddie Mac are given higher loans limits to $625,000, although the House is pushing for higher limits in its version of the bill up to $730,000.

All of this comes as home values and confidence continue to slip and the nation’s economy sputters along with rising fuel and commodities prices causing real concern. As I have said before in this column, consumer and investor confidence is a central key to resolving this mortgage and financial crisis. Last week there were signs that restoring confidence may finally be getting more attention.

Policy makers in Washington have begun to talk in terms of needing to know a true, independently derived appraisal documenting the collateral value and making sure the regulatory process is in place to do what is necessary in today’s complicated financial marketplace. At a Congressional hearing both Treasury secretary Henry Paulson and Federal Reserve chairman Ben Bernanke called for legislation and regulatory reform to prevent a future financial crisis. Their suggestions include authority in a new regulator to fill in the gap created by today’s complicated and exotic financing. And while it will be up to the next president and the next Congress to address this in full, the discussion has begun in earnest. Also in Washington last week, the FDIC held a conference on low-and moderate-income lending issues and panelists attested to the need for an appraisal process that is accountable with quality, independent appraisals being a high priority.

Music to my ears, as I have worked through the kind of financial institution crisis we face in the past and I know that re-valuing the collateral to today’s market value, and strengthening appraisal policies are required and important steps toward restoring consumer and investor confidence. Sheila Bair, chairman of the FDIC, is a believer in quality appraisals and knows the necessity of knowing the true value of the underlying collateral for a loan. Her office sponsored the FDIC forum and we are likely to hear more from her as the discussions for additional regulatory authority unfold in the coming months.

Stay tuned as we continue to work though these trying times.

Thomas J. Inserra is the CEO of Zaio Corp., an independent supplier of technology and appraisal services to more than 500 USA lenders. For more information, visit http://www.zaio.com.

Virginia Woman Indicted in $132 Million Property Investment Fraud Scheme

By James Comtois
July 16, 2008

After allegedly scheming to defraud property investment clients of $132 million in funds, a Virginia woman has been indicted, according to acting assistant attorney general Matthew Friedrich and U.S. attorney for the Eastern District of Virginia Chuck Rosenberg.

Lara Coleman of Richmond, Va., was charged in a superseding indictment with conspiracy, fraud and money laundering charges. The superseding indictment stems from a scheme to defraud and obtain millions of dollars in client funds held by the 1031 Tax Group LLP, a qualified intermediary company owned by Edward H. Okun, a co-defendant.

On July 10, a federal grand jury in Richmond returned a 27-count superseding indictment charging Mr. Okun of Miami, and Ms. Coleman with one count of conspiracy to commit mail and wire fraud, one count of conspiracy to commit money laundering, 13 counts of wire fraud, three counts of mail fraud, seven counts of money laundering, one count of bulk cash smuggling and forfeiture.

Mr. Okun is also charged with one count of making false statements.

The original indictment returned on March 17, 2008 charged only Mr. Okun with mail fraud, bulk cash smuggling and making false statements. Mr. Okun's initial appearance was held March 18, 2008, in the U.S. District Court for the Southern District of Florida, and Ms. Coleman's initial appearance was held on July 11, 2008 in the U.S. District Court for the Eastern District of Virginia.

According to the indictment, from August 2005 through April 2007, Mr. Okun and Ms. Coleman used 1031TG and its subsidiaries, all owned by Mr. Okun, in a scheme to defraud clients of millions of dollars through false pretenses. Section 1031 of the Internal Revenue Code allows investment property owners to defer the capital gains tax that would otherwise be due on properties sold, if the proceeds are used to purchase new property in a specified timeframe.

To facilitate such exchanges, investment property owners deposit the proceeds from the sale of their property with qualified intermediaries and sign exchange agreements, which include various promises by the qualified intermediaries to clients regarding the safekeeping and use of exchange funds.

Specifically, the indictment alleges that 1031TG obtained funds by promising clients that their money would be used solely for 1031 exchanges as outlined in the exchange agreements.

After making such promises, Mr. Okun and Ms. Coleman allegedly misappropriated approximately $132 million in client funds to support Mr. Okun's lavish lifestyle, pay operating expenses for his various companies, invest in commercial real estate and purchase additional qualified intermediary companies to obtain access to additional client funds.

The indictment also alleges that Mr. Okun and Ms. Coleman instructed employees to withdraw $15,000 in cash from Investment Properties of America’s bank account, a company owned by Mr. Okun, and smuggle the cash to Mr. Okun's personal yacht on Paradise Island in the Bahamas to avoid federal currency reporting requirements.

The indictment further alleges that Mr. Okun made material false statements under oath before the U.S. District Court for the Eastern District of Virginia relating to conversations he had with the chief legal officer of IPA.

The charges of conspiracy to commit mail and wire fraud, conspiracy to commit money laundering, wire fraud and mail fraud each carry a maximum prison sentence of 20 years. The charges of money laundering, bulk cash smuggling and false declaration carry a five-year maximum prison sentence.

The indictment seeks forfeiture of all funds and assets owned by Mr. Okun and Ms. Coleman that were derived from or connected to the misappropriation of approximately $132 million in funds held by 1031TG and all funds and assets traceable to the $15,000 in cash Mr. Okun instructed to be smuggled to his yacht in the Bahamas.

Assistant U.S. attorney for the Eastern District of Virginia Michael S. Dry and trial attorney Brigham Q. Cannon of the criminal division’s fraud section are prosecuting this case. The U.S. Postal Inspection Service, IRS and the FBI are conducting this continuing investigation.

Former First Bank Mortgage President Indicted on Multiple Fraud Charges

By James Comtois
July 16, 2008

After allegedly engaging in fraudulent activities causing a loss of $35 million to a St. Louis bank, the former president of First Bank Mortgage has been indicted, according to U.S. attorney Catherine L. Hanaway of the Eastern District of Missouri and John Gillies, special agent-in-charge for the FBI in St. Louis.

Mark Turkcan, of Kirkwood, Mo., was charged in an 11-count indictment alleging fraudulent activities connected with his position at First Bank Mortgage.

"The indictment alleges that Mark Turkcan, as president of First Bank Mortgage, misapplied monies of the bank, which caused them to pay loans, interest, commissions and other fees of more than $35 million to Bear Stearns, due to concealment of unauthorized and unapproved borrowings made on behalf of First Bank Mortgage," said Ms. Hanaway.

According to the indictment, the losses began as early as 1987 when Mr. Turkcan was employed by Sheahan Financial, which, along with Clayton Savings and Loan, was purchased by First Bank. The substantial losses that Mr. Turkcan incurred at Sheahan were from on-hedge positions taken on behalf of Sheahan, and were concealed at Sheahan.

In 1990, First Bank purchased Clayton Savings and Loan and Sheahan Financial without knowing about the losses concealed on the books of Sheahan, causing First Bank to overpay in the purchase.

After the purchase of Sheahan in 1990, Mr. Turkcan became president of First Bank Mortgage. He continued to buy and sell mortgage-backed securities as part of his job. However, losses from the unauthorized and unapproved borrowings continued and ultimately rose to approximately $35 million.

The losses were allegedly covered up and concealed from First Bank by destroying or changing records and posting profits on the books and records of the bank. To cover the losses, Mr. Turkcan allegedly borrowed against the mortgage-backed securities of First Bank Mortgage. These loans were also concealed from First Bank.

To conceal the true nature of these transactions, Mr. Turkcan allegedly created false and fictitious trade tickets and Bear Stearns confirmations.

The indictment alleges that ultimately these losses rose to a level of approximately $35 million, which First Bank had to pay Bear Stearns.

Mr. Turkcan was indicted by a federal grand jury on eight felony counts of wire fraud, one felony count of misapplication of bank money, one felony count of making false bank entries, and one felony count of causing the filing a false annual report.

If Mr. Turkcan is convicted, each wire fraud count carries a maximum penalty of 30 years in prison and/or fines up to $1 million. The felony counts of making false bank entries each carry a maximum of 30 years in prison and/or fines up to $1 million, and the felony count of causing the filing a false annual report carries a maximum of 20 years and/or fines up to $5 million. Restitution is mandatory on all counts.

First assistant Michael W. Reap of the U.S. attorney’s office for the Eastern District of Missouri is prosecuting the case.