Mortgage Fraud Concept And Protection


Moral infringement and criminal exercises in different enterprises have influenced our economy in the course of recent decades, especially in the saving money, monetary and lodging segments. In this article, we analyze the complex moral and criminal issues encompassing mortgage fraud. Fraud in its most straightforward shape is ponder distortion and trickiness. Fraud in real life implies that one misdirects another by distorting data, actualities, and figures. (Four noteworthy players cut up your mortgage in the optional market, in Off camera Of Your Mortgage.)

What is Mortgage Fraud?

Mortgage fraud is not quite recently savage loaning hones that objective certain borrowers. As indicated by the Government Agency of Examination (FBI) mortgage fraud is “material misquote, deception or oversight identifying with the property or potential mortgage depended on by a guarantor or bank to reserve, buy or protect a credit.” With this working definition, we see that mortgage fraud can be submitted by both individual borrowers and industry experts.

Why Confer Mortgage Fraud?

Borrowers and experts are roused to confer mortgage fraud for some reasons. We can depict the greater part of those reasons by characterizing two essential components – fraud for lodging and fraud for benefit. Fraud for lodging is submitted by borrowers who, frequently with the help of advance officers or other bank faculty, distort or exclude pertinent insights about work and salary, obligation and credit, or property estimation and condition with the objective of getting or keeping up land proprietorship. Note that fraud for lodging can be conferred by people who mean to possess a property as main living place, or by financial specialists who plan to lease the property as a wellspring of pay or to re-offer for pick up.

Fraud for benefit is conferred by industry experts who misquote, distort or discard significant insights about their own or their customers’ work and pay, obligation and credit, or property estimation and condition with the objective of amplifying benefits on an advance exchange. It is critical to note here that fraud for benefit can be submitted by any expert in the advance exchange chain including the manufacturer, land deals specialist, advance officer, mortgage merchant, credit/obligation advocate, land appraiser, property overseer, protection operator, title organization, lawyer, and escrow specialist. Industry experts can likewise work in show, as a system, to defraud guarantors, loan specialists and borrowers, and augment charges and offer benefits on all mortgage related administrations. These activities are propelled either by the yearning to increase additional business commissions or basically increment a venture position. (Character criminals are utilizing home value credit extensions to perpetrate their wrongdoings. Discover more in Shield Yourself From HELOC Fraud.)

Regular Mortgage Fraud Plans and Tricks

The most widely recognized financial specialist mortgage fraud plans are diverse sorts of property flipping, inhabitance fraud and the straw purchaser trick. Property flipping is for the most part not unlawful when related with acquiring a house, holding/settling it and after that exchanging it for a benefit. Then again when a property is purchased underneath showcase and promptly sold at benefit with the assistance of a degenerate appraiser who “confirms” that the estimation of the property is in reality twofold the underlying buy sum, mortgage fraud is shown.

Occupancy fraud is a plan utilized by speculators to fit the bill for higher advance to-esteem and lower out of pocket costs on buys, notwithstanding lower mortgage rates. Occupancy fraud happens when a borrower guarantees that the home will be proprietor involved to get ideal bank status when the property will really stay empty. The straw purchaser either utilizes their character credit and salary to get property for another purchaser who may not qualify. Straw purchasers are frequently utilized by financial specialists, either eagerly or accidentally to conceal different structures and various layers of fraud.

The most widely recognized individual mortgage fraud tricks are data fraud and pay/resource misrepresentation. Data fraud, where the genuine purchaser fraudulently acquires financing utilizing an unwilling and unconscious casualty’s data including Government disability numbers, birth dates, and addresses. Fraud for mortgage purposes may likewise incorporate stolen pay stubs, bank records, assessment forms, W2s and misrepresented work check letters. Indeed, even property possession records can be adulterated, and a borrower can acquire a fraudulent mortgage on a property that they neither claim nor involve.

The most widely recognized industry proficient mortgage fraud tricks are the air credit and evaluation fraud. The air advance is a credit got on a nonexistent property or for a nonexistent borrower. A gathering of experts will regularly cooperate to make a fake borrower, a chain of title on a nonexistent property, and to get a title and property protection folio. Also, the fraud chain may incorporate telephone banks and letter drops to make fake business confirmations, street numbers and borrower phone numbers. The airloan trick essentially places money under the control of the culprits, and no property is ever purchased or sold. Examination fraud frequently includes a land specialist, manufacturer, appraiser and credit officer cooperating to augment a price tag and advance sum keeping in mind the end goal to build commission. Then again, degenerate appraisers will regularly underestimate a property to guarantee that a kindred financial specialist will have the capacity to buy the benefit.

A few types of savage loaning exercises, abandonment safeguard and mortgage lessening tricks depend vigorously on the previously mentioned mortgage fraud hones. Ruthless loaning regularly includes adulterating moneylenders’ salary figures to incorrectly mirror their capacity to expect extra obligation. Such exercises intensely added to the Incomparable Subsidence. (Ponzi plans are only one case of this kind of trick; figure out how to abstain from turning into a casualty, in Partiality Fraud: No Wellbeing In Numbers.)

How does a Mortgage Fraud Plan Function?

In this case of that day close property flipping plan, the chain of title and the examination are frequently fraudulent and incorporate three gatherings – the vender, the flipper and the clueless end purchaser. The merchant makes contract with the flipper to buy the property at underneath showcase esteem. The flipper gives the end purchaser a fraudulent title protection responsibility, demonstrating the flipper as proprietor (however not the situation) and an examination is made at the swelled value the flipper and end purchaser have conceded to.

In a few notable cases, a Cincinnati advance processor utilized false pay documentation, expanded examination esteems and fake organizations to take about $400,000. In Atlanta, 10 individuals were sentenced utilizing a system of credit officers, appraisers and straw purchasers to execute a $41 million property flipping plan. At last, in Detroit a gathering utilized wholesale fraud to acquire marks and individual data that were changed over into a fake bind of title used to illicitly offer properties between clueless purchasers and dealers.

Could Mortgage Fraud Be Fought or Ceased?

There is no deficiency of enactment at the neighborhood, state or government level intended to diminish mortgage fraud. States have made a major stride by requiring credit officer permitting and proceeding with instruction. Furthermore, land, title, and protection offices are authorized and observed by government offices. Many states additionally require intermittent evaluating of mortgage-loaning organizations’ exercises and exchanges to screen consistence. Proficient associations, for example, the Mortgage Investors Affiliations and National Relationship of Mortgage Agents have an implicit rules and best practices that are peer-checked. The FBI’s Monetary Violations Unit II additionally screens objections and suspicious action in the mortgage business.

How does Mortgage Fraud Influence the Business sectors?

To comprehend the suggestions for the lodging and land businesses, and for money related organizations, basically allude to the features and writing on the 2008 subprime mortgage emergency. A speedy investigation of subsidiaries and mortgage-supported securities recounts the stories of monetary foundation disappointments that took after theoretical loaning that was once in a while in view of mortgage fraud.

All that really matters

The uplifting news is we can enhance the business sectors by diminishing mortgage fraud. People must set reasonable desires for obtaining and homeownership encounter. Financial specialists should set sensible objectives for benefit. Industry experts must seek after higher individual measures and submit to peer association responsibility. Governments need to make enactment more uniform and accommodate law authorization with dynamic examinations. (The fraudsters in The Pioneers Of Budgetary Fraud were the first to confer fraud, take part in insider exchanging and control stock.)


Financial Fraud: THOMAS HEAPHY, JR., Indicted And Pleaded Guilty to Conspiracy And Tax Offenses Stemming

Financial Fraud

Long Island Man Pleads Guilty to Conspiracy and Tax Offenses Stemming from Stock “Pump and Dump” Scheme

Deirdre M. Daly, United States Attorney for the District of Connecticut, announced that THOMAS HEAPHY, JR., 42, of East Moriches, N.Y., waived his right to be indicted and pleaded guilty today in New Haven federal court to conspiracy and tax offenses stemming from his role in a securities fraud scheme.

According to court documents and statements made in court, between approximately 2011 and July 2016, HEAPHY conspired with others, including Christian Meissenn, William Lieberman and Damian Delgado, to defraud investors through a stock “pump and dump” scheme. HEAPHY and his co-conspirators induced investors to purchase securities by making false and misleading representations in calls, emails and press releases concerning the securities and the issuing companies, thereby causing the price of those securities to become falsely inflated. The issuing companies, which were essentially shell companies with virtually no legitimate business activities, included Terra Energy Resources Ltd. (stock symbol “TRRE”); Mammoth Energy Group, Inc. (stock symbol “MMTE”), a company that later became Strategic Asset Leasing Inc. (stock symbol “LEAS”); Trilliant Exploration Corporation (stock symbol “TTXP”); Hermes Jets, Inc. (stock symbol “HRMJ”), which later became Continental Beverage Brands Corporation (stock symbol “CBBB”); Dolat Ventures, Inc. (stock symbol “DOLV”), and Fox Petroleum, Inc. (stock symbol “FXPT”).

HEAPHY’s numerous misrepresentations induced investors to purchase securities, thus causing the share price of the securities to become artificially inflated. Certain of HEAPHY’s co-conspirators then sold their own preexisting positions in the securities at a profit. They then allowed he price of the securities to fall, leaving investors with worthless and unsalable stock. As a result, victim investors lost millions of dollars.

HEAPHY received approximately 25 percent of all money that he induced individuals to invest. His personal gain from the scheme totaled approximately $719,000. HEAPHY disguised the income by having the funds flow through the trust accounts of various attorneys, including Corey Brinson in Connecticut, into bank accounts in the name of various shell entities under HEAPHY’s control. HEAPHY’s failure to pay taxes on this income resulted in a loss of $147,345 to Internal Revenue Service.

HEAPHY pleaded guilty to one count of conspiracy to commit mail and wire fraud, which carries a maximum term of imprisonment of 20 years, and one count of tax evasion, which carries a maximum term of imprisonment of five years. He is scheduled to be sentenced by U.S. District Judge Jeffrey A. Meyer on October 20, 2017.

At sentencing, HEAPHY will be ordered to pay restitution to his victims, as well as back taxes, interest and penalties to the Internal Revenue Service.

On November 8, 2016, Meissenn, also known as “Christian Nigohossian,” of Suffield, Conn., pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of tax evasion. He awaits sentencing.

On January 20, 2017, Brinson, of Hartford, pleaded guilty to one count of engaging in a monetary transaction in property derived from specified unlawful activity. On April 13, 2017, he was sentenced to 36 months of imprisonment.

On May 10, 2017, Lieberman, of Boca Raton, Fla., pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of tax evasion. He awaits sentencing.

On May 12, 2017, Delgado, of Orlando. Fla., pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of tax evasion. He awaits sentencing.

This ongoing investigation is being conducted by the Federal Bureau of Investigation, Internal Revenue Service – Criminal Investigation Division and U.S. Postal Inspection Service, with assistance from the Connecticut Department of Banking and the Hartford and Stamford Police Departments. This case is being prosecuted by Assistant U.S. Attorneys Avi M. Perry and Peter S. Jongbloed.

Citizens with information that may be helpful to this ongoing investigation, or who believe they may have been victimized by this scheme, are encouraged to contact the FBI at (203) 777-6311.

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Tax Fraud: Florida Return Preparer Pleads Guilty to Conspiring to File And Filing Fraudulent Tax Returns

Tax Fraud

Justice Department Sues to Stop South Florida Tax Return Business and its Preparers from Preparing Tax Returns

Tax Return Preparers Allegedly Made False Claims for the Fuel Tax Credit

A Lauderhill, Florida tax return preparation business, and several of its corporate officers, prepare false tax returns for their customers, according to a new civil lawsuit filed by the Justice Department today. The suit, filed in federal court in Fort Lauderdale, Florida, asks the court to bar Aleluya Universal Accounting Services Inc. (Aleluya) and its officers Frantz Petit-Dos, Luczor Fertilien, and David Joseph from preparing federal income tax returns for others. The government also requests a court order requiring the business and these officers to disgorge the gross receipts they obtained from preparing federal tax returns that make, among other things, false claims.

The complaint alleges that the defendants prepare tax returns that unlawfully understate income tax liabilities and overstate refunds by fabricating and/or exaggerating deductions and tax credits their clients are not eligible to take. For example, the defendants claimed Fuel Tax Credits for customers who did not qualify for this credit, according to the complaint. In particular, Joseph falsely advised one customer that she was eligible for the Fuel Tax Credit because she was self-employed and drove herself to work, according to the complaint. Similarly, Fertilien told the Internal Revenue Service (IRS) that he advised anyone with receipts for gas used in their vehicles could claim the Fuel Tax Credit, according to the complaint.

The government alleges in its complaint that Petit-Dos’s, Fertilien’s, and Joseph’s misconduct predates the creation of Aleluya. Prior to Joseph forming Aleluya in June 2013, Petit-Dos and Fertilien owned a tax return preparation business called Imperial Taxation that was located at the same Lauderhill location as Aleluya, according to the complaint. The complaint alleges that Petit-Dos, Fertilien, and Joseph (a return preparer at Imperial Taxation) prepared false tax returns and committed other violations of the Internal Revenue Code while at Imperial Taxation. Altogether, the complaint alleges that the loss to the U. S. Treasury from the defendants’ activities may be in the millions of dollars.

The IRS is reminding taxpayers that the 2017 individual income tax return filing season began on Jan. 23, 2017, and there is information available on the IRS’s website. Return preparer fraud was one of the IRS’s Dirty Dozen Tax Scams for 2016 and taxpayers seeking a return preparer should remain vigilant. The IRS has some tips on their website for choosing a tax preparer and has launched a free directory of federal tax preparers.

In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers. Information about these cases is available on the Justice Department’s website. An alphabetical listing of persons enjoined from preparing returns and promoting tax schemes can be found on this page. If you believe that one of the enjoined persons or businesses may be violating an injunction, please contact the Tax Division with details.

Florida Return Preparer Pleads Guilty to Using Stolen IDs to File Fraudulent Tax Returns

Caused Tax Loss of More than $550,000

A Broward County, Florida tax return preparer pleaded guilty today to conspiring to file and filing fraudulent tax returns with the Internal Revenue Service (IRS), announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and Acting U.S. Attorney Benjamin G. Greenberg for the Southern District of Florida.

According to documents filed with the court, Frantz Petit-Dos, 41, owned two tax preparation businesses in Lauderhill, Florida: Imperial Taxation and Multi-Services Corp. and Aleluya Universal Accounting Services Inc., with Luczor Fertilien, 39, and David Joseph, 37. From approximately 2010 through 2016, Petit-Dos, Fertilien and Joseph filed fraudulent returns for their clients seeking refunds to which the clients were not entitled, by reporting fictitious business income, fraudulent education and fuel tax credits and claiming deceased individuals as dependents. They also filed returns in the names of individuals whose identities had been stolen. Petit-Dos did not report the illegal proceeds he received from this scheme on his personal tax returns and admitted to causing a tax loss of more than $550,000. On July 14, Fertilien and Joseph pleaded guilty to their involvement in this scheme.

Petit-Dos is scheduled to be sentenced on Oct. 6 before U.S. District Court Judge William P. Dimitrouleas. He faces a statutory maximum sentence of five years in prison on the conspiracy count and a maximum sentence of three years in prison on the false return count. He also faces a period of supervised release, restitution and monetary penalties. Fertilien and Joseph are scheduled to be sentenced on Sept. 22.

Acting Deputy Assistant Attorney General Goldberg and Acting U.S. Attorney Greenberg thanked special agents of IRS Criminal Investigation and U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, who conducted the investigation, and Assistant U.S. Attorney Neil Karadbil and Assistant Chief Greg Tortella of the Tax Division, who are prosecuting the case.

Additional information about the Tax Division’s enforcement efforts can be found on the division’s website.

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Financial Fraud: Craig Sizer Sentenced For Orchestrating Two Investment Fraud Schemes

Financial Fraud

Miami Resident Sentenced to 15 Years in Prison for $23 Million Boiler Room Fraud Scheme

On July 26, 2017, Craig Sizer, 49, of Miami, Florida, was sentenced by United States District Judge Marcia G. Cooke to 180 months in prison for orchestrating two investment fraud schemes that targeted elderly and unsophisticated investors throughout the nation and defrauded over 700 victims out of $23 million. Sizer previously pled guilty to one count of conspiracy to commit wire and mail fraud.

Benjamin G. Greenberg, Acting United States Attorney for the Southern District of Florida and Special Agent in Charge George L. Piro for the Federal Bureau of Investigation (FBI), Miami Field Office, made the announcement.

From April 2009 to August 2015, Sizer and his co-conspirators Keith Houlihan, 49, of Boca Raton, Miguel (“Mike”) Mesa, 57, of Miami Lakes, Charles K. Topping, 40, of North Bay Village, Anita Sgarro, 54, of Marina Del Ray, California, Charles David Smigrod, 69, of Coconut Grove, Matthew William Wheeler, 33, of Miami, James Wayne Long, 60, of Miramar, Jack Willard Sini, 58, of Pembroke Pines, Juan M. Perez Ortega 47, of Miami Lakes, Martin Miller, 75, of New Haven, Connecticut, Jason David Hershberger, 40, of Fort Lauderdale, and Shawna Leigh Lynch, 44, of Fort Lauderdale, used false and fraudulent claims to solicit investors throughout the United States to buy shares of stock in Sanomedics International Holdings, Inc. (“Sanomedics”), a company that sold non-contact infrared thermometers for home healthcare and for dogs.

Sales agents used sales pitches that included several materially false statements, including that: stock sales did not include commissions or fees; sales agents were compensated with stock or paid by the hour; the stock could be sold after six months; the sales agents worked directly for Sanomedics; stock purchases were safe and secure; and famous and wealthy individuals, such as former CEOs of Apple Inc., PepsiCo, and IVAX Corp., and the “Dog Whisperer,” were either heavily invested in the company or were company representatives. In truth, the co-conspirator sales agents worked for Mesa and Sgarro in two boiler rooms, not for Sanomedics. Investors were never able to sell their stock. Approximately 90% of investor proceeds were misappropriated by the co-conspirators to cover commissions and fees. The co-conspirator sales agents were not paid by the hour and did not receive stock options, but were in fact paid hefty commissions. Additionally, there were no actual endorsements by celebrities or wealthy individuals. The investors relied on the fraudulent statements. As a result of the scheme, the co-conspirators defrauded over 700 people out of approximately $21 million.

Also, from approximately August 2014 to August 2015, Sizer, Mesa, Topping, Smigrod, Wheeler, Long, Sini, Perez, and Miller used a fraud scheme, similar to the one described above, to sell shares of stock in Fun Cool Free (“FCF”), a company that claimed to own a smartphone gaming portfolio with over 500 gaming applications. Mesa oversaw the boiler room that was utilized to facilitate the fraudulent scheme. The co-conspirators used false claims, including assertions that they worked directly for the company and that FCF was partners with Apple Computers, to defraud over 70 other investors out of $1.5 million.

Seven of Sizer’s co-conspirators previously pled guilty and were sentenced for their role with the fraudulent schemes, including the former CEO of Sanomedics, Keith Houlihan, who was sentenced to 111 months in prison and the manager of the Miami boiler room, Mike Mesa, who was sentenced to 100 months in prison. Co-conspirators Topping, Sgarro, Smigrod, Wheeler, and Long were previously convicted at trial by a Miami federal jury and are awaiting sentencing.

Mr. Greenberg commends the investigative efforts of the FBI in this matter. Mr. Greenberg also thanked the Florida Office of Financial Regulation (OFR) for their assistance. This case was prosecuted by Assistant U.S. Attorney Roger Cruz and Trial Attorneys Ryan D. Tansey and Kevin B. Hart from the Antitrust Division of the U.S. Department of Justice.

A copy of this press release may be found on the website of the United States Attorney’s Office for the Southern District of Florida at Related court documents and information may be found on the website of the District Court for the Southern District of Florida at or on

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Financial Fraud: Prospect Mortgage Company, LLC Agrees To Pay To Resolve False Claims Act Settled Civil Mortgage Fraud

Financial Fraud

Prospect Mortgage, LLC agrees to pay $4.157 Million to resolve False Claims Act allegations arising from the FHA Mortgage Lending Practices of two of its branches

ATLANTA – John A. Horn, U.S. Attorney for the Northern District of Georgia, and Brian J. Stretch, U.S. Attorney for the Northern District of California, announced that the United States has settled civil mortgage fraud claims against Prospect Mortgage Company, LLC (“Prospect”) stemming from Prospect’s participation in the Direct Endorsement Lender Program, which is administered by the Federal Housing Administration (“FHA”) and the U.S. Department of Housing and Urban Development (“HUD”).

“To participate in the FHA program, Prospect had to comply with HUD underwriting and quality control requirements and certify that these requirements had been satisfied with respect to each FHA loan it originated,” said John A. Horn, U.S. Attorney for the Northern District of Georgia. “Prospect failed to adhere to these requirements at two Southeastern branches and when many of these loans later defaulted, the United States suffered substantial losses.”

“Prospect’s knowing failure to comply with material HUD loan origination requirements not only resulted in major losses to the public fisc, but also served to undermine the FHA program,” said Brian Stretch, U.S. Attorney for the Northern District of California. “Today’s settlement demonstrates the Department of Justice’s resolve and commitment to hold lenders, large and small, accountable for this type of fraudulent conduct.”

“Ensuring the fiscal integrity of FHA programs is at the core of our mission,” said Acting HUD Inspector General Helen M. Albert. “We will continue to work with our law enforcement partners to identify and root out those that seek to compromise such programs that are directly intended to assist the American public,” he concluded.

In this settlement, Prospect has agreed to pay the United States $4.157 million to resolve an investigation conducted by the U.S. Attorneys’ Offices for the Northern Districts of Georgia and California into whether Prospect violated the False Claims Act by falsely certifying compliance with critical underwriting and quality control (“QC”) requirements when originating loans insured by the FHA and HUD. As revealed by an Atlanta HUD-Office of Inspector General (“OIG”) audit, two Prospect branches – one in Florida and another in North Carolina – originated many of these loans without adhering to the requisite HUD requirements. As a result, the United States suffered substantial losses when the loans defaulted and ripened into claims by Prospect for insurance payments from the United States.

Prospect participated in the FHA insurance program as a Direct Endorsement Lender (“DE Lender”). As a DE Lender, Prospect had the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a DE Lender approves a mortgage loan for FHA insurance, and the loan later defaults, the holder of the loan may submit an insurance claim to the Government to recover its losses on the loan. Under the DE Program, the Government does not review a loan before endorsement for FHA insurance. Instead, FHA and HUD rely upon DE Lenders like Prospect to follow program rules, which require, among other things, that a lender: (1) adhere to HUD underwriting guidelines; (2) maintain a QC program that can identify and correct deficiencies in their underwriting practices; and (3) self-report to HUD materially deficient loans identified by their QC program.

Between December 2007 and December 2009, Prospect had a 12.29 percent default rate – well in excess of the national average – within HUD’s Atlanta Home Ownership Center (“HOC”). HUD determined that approximately 76% of these defaults were attributable to two particular Prospect branches located in Florida and North Carolina. The Government’s investigation revealed that the majority of the audited loans from these branches were not compliant with HUD underwriting requirements relating to Prospect’s assessment of borrower: (1) assets; (2) income; and (3) credit, which are essential considerations in determining whether a loan will be repaid, as opposed to going into default or serious delinquency.

As part of the settlement, Prospect has acknowledged among other things, the following conduct that occurred in the two Prospect branches at issue:

Prospect endorsed for FHA insurance loans that had not been originated in accordance with HUD requirements concerning a DE Lender’s assessment of assets, income, and credit.

Prospect falsely certified that the non-compliant loans that it originated had been underwritten in accordance with HUD underwriting requirements.

As evidenced by its 12.29% default rate within the Atlanta HOC, and the fact that 76% percent of such defaults were attributable to one branch office in Florida and another in North Carolina, Prospect failed to adhere to HUD quality control guidelines.

The investigation of this case was a coordinated effort between the U.S. Attorneys’ Offices for the Northern Districts of Georgia and California, HUD, and HUD-OIG.

This resolution with Prospect is the latest in a string of civil fraud cases pursued by the United States in recent years alleging fraudulent lending practices by residential mortgage lenders.

Assistant U.S. Attorney Paris A. Wynn handled this matter for the U.S. Attorney’s Office for the Northern District of Georgia.

For further information please contact the U.S. Attorney’s Public Affairs Office at (link sends e-mail) or (404) 581-6016. The Internet address for the home page for the U.S. Attorney’s Office for the Northern District of Georgia Atlanta Division is

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Financial Fraud: WILLIAM McFARLAND Charged With Wire Fraud, in Connection With a Scheme to Defraud Investors in Fyre Media LLC Company

Financial Fraud

Manhattan U.S. Attorney Announces Charges Against Individual For Defrauding Investors In Digital Media Company

William McFarland Made False Representations to Investors in Fyre Media LLC and the Fyre Festival

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a criminal Complaint charging WILLIAM McFARLAND with wire fraud, in connection with a scheme to defraud investors in a company controlled by McFARLAND, Fyre Media LLC (“Fyre Media”), as well as a related entity responsible for organizing a music festival set to take place in the Bahamas (the “Fyre Festival”). McFARLAND was arrested today in New York, New York, and is expected to be presented before U.S. Magistrate Judge Kevin N. Fox tomorrow.

Acting Manhattan U.S. Attorney Joon Kim said: “As alleged, William McFarland promised a ‘life changing’ music festival but in actuality delivered a disaster. McFarland allegedly presented fake documents to induce investors to put over a million dollars into his company and the fiasco called the Fyre Festival. Thanks to the investigative efforts of the FBI, McFarland will now have to answer for his crimes.”

Assistant Director-in-Charge William F. Sweeney Jr. said: “Under McFarland’s direction, Fyre Media created a promoter’s marketplace for entertainment bidding. In addition to this initial business venture, McFarland went one step further in establishing a subsidiary of the company, Fyre Festival LLC. But in order to drive the success of both entities, as alleged, McFarland truly put on a show, misrepresenting the financial status of his businesses in order to rake in lucrative investment deals. In the end, the very public failure of the Fyre Festival signaled that something just wasn’t right, as we allege in detail today.”

According to the allegations in the Complaint[1] unsealed today in Manhattan federal court:

McFARLAND was the founder and Chief Executive Officer of Fyre Media. In 2016, McFARLAND started Fyre Media to build a digital app that would allow individuals organizing commercial events, such as concerts, to bid for artist and celebrity bookings at such events. According to Fyre Media documents provided to investors by McFARLAND, Fyre Media’s historical and projected revenue from at least April 2016 to November 2017 consisted solely of artist bookings. In late 2016, McFARLAND established a subsidiary of Fyre Media known as Fyre Festival LLC and began promoting the Fyre Festival. McFARLAND promoted the Fyre Festival in part by claiming that it would bring a global audience together to share a life changing experience. Ultimately, the Fyre Festival was widely deemed to have been a failure.

From in or about 2016 through in or about May 2017, McFARLAND perpetrated a scheme to defraud, inducing at least two individuals to invest approximately $1.2 million dollars in Fyre Media and an associated entity based on misrepresentations about Fyre Media’s revenue and income. In order to procure these investments, McFARLAND provided materially false information. For example, McFARLAND told investors that Fyre Media earned millions of dollars of revenue from thousands of artist bookings from at least July 2016 until April 2017. In reality, during that approximate time period, Fyre Media earned less than $60,000 in revenue from approximately 60 artist bookings.

In addition, McFARLAND provided at least one investor an altered stock ownership statement, in an effort to make it appear that McFARLAND could personally guarantee the investment. Specifically, McFARLAND provided an altered brokerage statement that purported to show that he owned shares of a specific stock worth over $2.5 million, when in reality he owned shares of that stock valued at less than $1,500.

McFARLAND, 25, of New York, New York, is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison.

The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Kim praised the investigative work of the FBI’s New York Field Office, and thanked the Securities and Exchange Commission for their assistance.

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorneys Kristy J. Greenberg and Dina McLeod are in charge of the prosecution.

The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

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Financial Fraud: CHRISTOPHER YOUNG & JOSHUA CARLUCCI For Allegedly Conspiring to Obstruct SEC Probe into Sale of Company

Financial Fraud

Federal Grand Jury in Chicago Indicts Two Former Tech Executives For Allegedly Conspiring to Obstruct SEC Probe into Sale of Company

CHICAGO — A federal grand jury in Chicago has indicted two former executives of a Florida technology company for allegedly conspiring to obstruct an investigation by the U.S. Securities and Exchange Commission.

CHRISTOPHER YOUNG, the former President of Tampa-based M2 Interactive Group Inc., and JOSHUA CARLUCCI, M2 Interactive’s former Chief Executive Officer, are charged with conspiracy to obstruct, influence, and impede an official proceeding. The pair allegedly conspired with executives from Schaumburg-based Quadrant 4 System Corp. to obstruct an SEC investigation into Quadrant 4’s 2013 purchase of M2 Interactive.

The indictment was returned Thursday in federal court in Chicago. In addition to the conspiracy count, Young, 35, of Norwich, N.Y., and Carlucci, 39, of Tampa, Fla., are also charged with attempting to obstruct, influence, and impede an official proceeding. Carlucci also faces a charge of making false statements to the Federal Bureau of Investigation. The Court will schedule arraignments for Young and Carlucci at a later date.

New and expanded criminal charges were also filed Thursday against the two Quadrant 4 executives, NANDU THONDAVADI and DHRU DESAI. A criminal information filed in federal court in Chicago charged them with wire fraud. Arraignments for Thondavadi, 63, of North Barrington, and Desai, 55, of Barrington, have been scheduled for July 6, 2017, at 10:00 a.m., before U.S. District Judge Charles Norgle.

The charges were announced by Joel R. Levin, Acting United States Attorney for the Northern District of Illinois; and Michael J. Anderson, Special Agent in Charge of the Chicago office of the FBI. The Chicago office of the SEC provided valuable assistance.

M2 Interactive was a technology company that developed applications for mobile devices and conducted business under the name Momentum Mobile. Quadrant 4 provides software products, platforms and consulting services to customers in the healthcare and education sectors. As a public company, Quadrant 4 is required to provide to the SEC a detailed report of its financial condition.

In 2015 the SEC launched an investigation of Quadrant 4 based on indications that the firm may have violated federal securities laws. The FBI initiated an investigation of Quadrant 4 in 2016. As set forth in the information against Thondavadi and Desai, the investigation revealed that Thondavadi and Desai engaged in a wide-ranging scheme to defraud Quadrant 4’s shareholders by misappropriating more than $3 million from the company, fraudulently inflating Quadrant 4’s revenue, and regularly concealing Quadrant 4’s liabilities. The information charges that Thondavadi and Desai certified false SEC reports, including Quadrant 4’s 2014 Form 10-K, in which the defendants fraudulently inflated Quadrant 4’s revenue by more than $4.2 million – nearly 10% of Quadrant 4’s reported income that year.

The fraud scheme also involved numerous misrepresentations related to Quadrant 4’s acquisitions, including misrepresentations about the terms of Quadrant 4’s purchase of Momentum Mobile in 2013. Quadrant 4 purchased Momentum Mobile for $100,000 in cash and 250,000 shares of Quadrant 4 stock, plus assumption of approximately $165,000 in Momentum Mobile liabilities, according to the indictment against Young and Carlucci. Federal authorities discovered that Thondavadi and Desai later concealed the true terms of the deal from Quadrant 4’s auditor and its shareholders, according to the charges. The pair furnished the auditor with a fictitious agreement that Thondavadi created, the charges state. The bogus document inflated the purchase price and failed to mention the liabilities Quadrant 4 assumed, according to the charges.

As set forth in the charges, the investigation further revealed that Thondavadi and Desai attempted to obstruct the SEC’s investigation of Quadrant 4 as it related to the Momentum Mobile acquisition. In July 2016 SEC attorneys sought to question Young and Carlucci, who were unaware of the fictitious acquisition agreement that Thondavadi created. Carlucci notified Thondavadi and Desai of the SEC’s inquiry, and the Quadrant 4 executives responded by striking a deal with Young and Carlucci to pay them cash in exchange for their agreement to send Thondavadi an e-mail falsely stating that Momentum Mobile had previously authorized the terms of the fictitious agreement, according to the charges. The defendants attempted to disguise the payments – $102,900 to Young and $60,000 to Carlucci – as “consulting” fees, the charges state.

The public is reminded that charges are not evidence of guilt. The defendants are presumed innocent and entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

The conspiracy, obstruction and wire fraud charges are each punishable by up to 20 years in prison, while making false statements to the FBI is punishable by up to five years. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory U.S. Sentencing Guidelines.

The government is represented by Assistant U.S. Attorney Matthew Madden.

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