Isaac Jerome Smith, 48, Spotsylvania, Virginia; and Alvita Karen Gunn, 33, Hanover, Maryland, were sentenced by U.S. District Judge Roger W. Titus to 70 months and 60 months in prison, each followed by three years of supervised release, respectively, for a fraud conspiracy, wire fraud and conspiracy to commit money laundering in connection with their participation in a massive mortgage fraud scheme which promised to pay off homeowners’ mortgages on their “Dream Homes,” but left them to fend for themselves. Judge Titus also ordered that the defendants pay restitution in the full amount of the loss, with the exact amount to be determined at a later hearing.
On February 18, 2011, a federal jury convicted Smith and Gunn, along with co-defendant Michael Anthony Hickson, 48, Commack, New York, after a six week trial. Hickson, chief financial officer of Metro Dream Homes (MDH), was also convicted of making a false statement in a federal court proceeding and is scheduled to be sentenced on July 1, 2011.
According to evidence presented at the trial, beginning in 2005, the defendants targeted homeowners and home purchasers to participate in a purported mortgage payment program called the “Dream Homes Program.” In exchange for a minimum $50,000 initial investment and an “administrative fee” of up to $5,000, the conspirators promised to make the homeowners’ future monthly mortgage payments, and pay off the homeowners’ mortgages within five to seven years. Dream Homes Program representatives told investors that the homeowners’ initial investments would be used to fund investments in automated teller machines (ATMs), flat screen televisions that would show paid business advertisements and electronic kiosks that sold goods and services. To give investors the impression that the Dream Homes Program was very successful, Metro Dream Homes spent hundreds of thousands of dollars making presentations at luxury hotels in Washington, D.C., New York, New York and Beverly Hills, California.
The evidence showed that in February 2007, the Dream Homes Program added a second program called “POS Dream Homes” offering similar promises of paying off investor mortgages in five to seven years in exchange for an up-front investment of $50,000 or more. Collectively, these programs had offices in Maryland, the District of Columbia, Virginia, North Carolina, New York, Delaware, Florida, Georgia and California.
According to trial testimony, the defendants failed to advise investors that: the ATMs, TV advertising and kiosks never generated any meaningful revenue; the defendants used the funds from later investors to pay the mortgages of earlier investors; and MDH had never filed any federal income tax returns. The defendants also failed to advise investors that their investments were being used to enrich select MDH employees, including the defendants, to: pay salaries of up to $200,000 a year as well as their mortgages; employ a staff of chauffeurs and maintain a fleet of luxury cars; and attend the 2007 National Basketball Association All-Star game and the 2007 National Football League Super Bowl, staying in luxury accommodations in both instances. Nor were investors told that investor funds were used to: pay off investors in a prior failed ATM investment venture called Bankcard Group; make multiple donations of up to $50,000 to charitable organizations to give MDH the appearance of being financially successful; and transfer millions of dollars in investor funds to third-party businesses for purposes not disclosed to investors.
Trial testimony showed that the defendants arranged for early Dream Homes Program investors, whose mortgage payments had been made by MDH using the funds of later Dream Homes Program investors, to attend recruitment meetings to assure potential investors that the Dream Homes Program was not a fraud. MDH used a third party company to pay investors to advertise the Dream Homes Program to friends and family. MDH encouraged homeowners to refinance existing mortgages on their homes in order to withdraw equity and generate the funds necessary to enroll their homes in the Dream Homes Program.
On Aug. 15, 2007, the Maryland Securities Commissioner issued a cease-and-desist order to MDH and other related companies directing them to immediately cease the offering and sale of unregistered securities in connection with their promotion of the Dream Homes Program. The defendants subsequently called meetings in which investors were told that MDH was earning up to $10 million per month and that the company’s legal difficulties were the result of either misunderstandings or racial animus against company leaders. On Sept. 4, 2007, the defendants filed a legal challenge to the cease-and-desist order in federal court in Maryland. Trial testimony established that at a hearing on Sept. 12, 2007, Hickson testified that the financial success of the Dream Homes Program did not rely upon new investor funds, when in fact Hickson knew that the sole source of meaningful revenue for MDH was new investor funds.
As a result of the scheme, more than 1,000 investors in the Dream Homes Program invested approximately $78 million. When the defendants stopped making the mortgage payments, the homeowners were left to attempt to make the mortgage payments MDH had promised to make in full.
Carole Nelson, 52, Washington, D.C., the chief financial officer of POS Dream Homes, previously pleaded guilty to money laundering, and Charlotte Melissa Josephine Hardmon, 39, Bowie, Maryland, pleaded guilty to conspiracy to commit wire fraud in connection with their participation in this scheme. Both are awaiting sentencing.
This prosecution is being brought jointly by the Maryland and Washington, D.C. Mortgage Fraud Task Forces, which are comprised of federal, state and local law enforcement agencies in Maryland, Washington, D.C. and Northern Virginia. The Task Forces were formed to promote the early detection, identification, prevention and prosecution of various kinds of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Forces, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and help to ensure the integrity of the mortgage market and other credit markets. Information about mortgage fraud prosecutions is available on the internet at http://www.usdoj.gov/usao/md/Mortgage-Fraud/index.html.
The sentences were announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; Acting Special Agent in Charge Jeannine A. Hammett of the Internal Revenue Service – Criminal Investigation, Washington, D.C. Field Office; Maryland Attorney General Douglas F. Gansler; and Inspector General Jon T. Rymer of the Federal Deposit Insurance Corporation.
“Mortgage fraud ruins lives, destroys families and devastates whole communities. This case demonstrates the FBI’s commitment to attacking the problem from every possible direction,” said FBI Special Agent in Charge Richard A. McFeely. “We will not rest until those who prey on vulnerable American homeowners are brought to justice.”
United States Attorney Rod J. Rosenstein praised the FBI, the IRS – Criminal Investigation, the Maryland Attorney General’s Office – Securities Division and the Federal Deposit Insurance Corporation – Office of Inspector General for their investigative work. Mr. Rosenstein thanked Assistant U.S. Attorneys Jonathan C. Su and Bryan E. Foreman, who prosecuted the case.