“What Else Lurks Out There That Hasn’t Been Uncovered by Investigators?”
January 22nd, 2008Via: Forbes:
Regulators call it fraud for profit. Real estate insiders refer to it as scamming for cash. Lehman Brothers isn’t calling it anything at all–or saying anything about being swindled out of upward of $50 million.
The U.S. Attorney in Los Angeles says the scam was masterminded by developers Charles Elliot Fitzgerald and Mark Alan Abrams, with help from Joseph Aram Babajian, real estate broker to such stars as Warren Beatty, Ryan Seacrest and Harrison Ford. Five people have been indicted on multiple charges of fraud and conspiracy. Between 2000 and 2003 the defendants allegedly stole tens of millions of dollars by inflating the values of homes. According to the criminal complaint, they bought real estate at fair prices, had the properties appraised at far higher amounts, borrowed those greater sums from Lehman and pocketed the difference, using the money to fund extravagant lifestyles. Five people, developer Abrams among them, have pleaded guilty to multiple felonies and await sentencing after they testify against other defendants. Babajian (pronounced Baba-zhan) and Fitzgerald have entered not guilty pleas.
As the mortgage cyclone lurches from subprime loans and shaky securities to blue-chip customers and creditors, it is exposing scams that were hidden for years behind rising real estate prices. Fraud reports by banks jumped sixfold between 2000 and 2006, to 21,279, though the real number is probably far greater since only federally insured banks are required to report suspected foul play. The FBI says it is chasing mainly big-dollar investigations, but its load exceeded 1,200 cases last year. No one knows the size of this con game. The Mortgage Bankers Association, which represents some of the very folks under investigation, puts the value of mortgage fraud in 2007 at $3 billion to $4 billion. “It’s an extremely conservative estimate, and that’s just direct losses to banks,” says Ann Fulmer, a vice president at Interthinx, an Agoura Hills, Calif. fraud prevention consultancy. In such cases, she says, creditors typically lose 45% to 100% of the loan amounts.
