A group of real estate investors have been caught by the Department of Justice for their attempt to rig bids and commit mail fraud at public real estate foreclosure auctions in California.
According to the felony charges, Thomas Franciose, William Freeborn, Robert Kramer, Thomas Legault, David Margen, Brian McKinzie, Jaime Wong and Jorge Wong have pleaded guilty to the fraudulent scheme where they rigged auctions in Contra Costa County and Alameda County by agreeing to refrain from placing bids against one another to acquire properties within the state.
The Department of Justice said some of the conspirators participated in the conspiracies in both counties and other individuals only took part in the collusive scheme in one county.
“While the country faces unprecedented home foreclosure rates, the collusion taking place at these auctions is artificially driving down foreclosed home prices and is lining the pockets of the colluding real estate investors,” said Christine Varney, assistant attorney general in charge of the Department of Justice’s antitrust division. “The antitrust division will vigorously pursue these kinds of collusive schemes that eliminate competition from the marketplace.”
The primary purpose of the conspiracies, which took place from May 2008 through January 2011, was to eliminate competition for the investors to acquire selected properties offered at the public auctions at noncompetitive prices, the DOJ said.
According to the DOJ, when real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner.
After the conspirators’ designated bidder bought a property, the conspirators would hold a secret, private auction at which each participant would bid the amount above the public auction price he was willing to pay, court documents said. The highest bidder at the private auction won the property, and documents said the difference between the public auction price and that at the second auction was the group’s illicit profit, and it was divided among the conspirators, often in cash.
The department said that the private auctions took place at or near the courthouse steps where the public auctions were held.
In addition, the eight conspirators were also charged with mail fraud by paying potential buyers who attended the auction to not make an offer on the property the investors wanted to obtain.
