Banker Ignored Requirements That Would Have Alerted Others to Massive Mortgage Fraud

Allison Tussey —  April 27, 2011 — 4 Comments

Jeffrey L. Levine, 70, Atlanta, Georgia, was sentenced by United States District Judge J. Owen Forrester to serve 5 years in federal prison on charges of causing materially false entries that overvalued bank assets to be made in the books, reports, and statements of Omni National Bank.

Levine was sentenced to 5 years in prison to be followed by 5 years of supervised release, and ordered to pay restitution in the amount of $6,761,791. Levine pleaded guilty to the charges on January 14, 2010.

As previously reported by Mortgage Fraud Blog, and according to the charges and other information presented in court: Levine was Executive Vice-President, the second largest bank shareholder, and head of the Community Redevelopment Lending Department at Omni National Bank from 2000 through October 12, 2007. To keep non-performing loans current on paper, Levine and others at Omni failed to disclose many exceptions to their policies and procedures which resulted in Omni being exposed to a greater risk of loss. Practices that went unreported included: diversion of loan proceeds escrowed for rehab; excessive credit concentrations to a single borrower; funding additional loans for Omni foreclosures at ever-increasing amounts; and failing to create sufficient reserves for those questionable loans or to properly record them on Omni‘s books and records.

Before takeover by the FDIC on March 27, 2009, Omni was headquartered in Atlanta with branch offices in Birmingham, Tampa, Chicago, Fayetteville, N.C., Houston, Dallas and Philadelphia. Omni borrowed federal funds at low rates to make high-interest, short-term loans through Levine‘s Community Redevelopment Department to borrowers with less than stellar credit and often no steady employment or formal education. Such Omni borrowers were supposed to purchase and rehab distressed properties for prompt resale or Section 8 rental in run-down, inner-city neighborhoods. Borrowers were expected to do most of the rehab themselves within a few months of the loan, and qualify for a loan to purchase a second property only when the first property was sold or ready for sale. Omni, its regulators and investors relied on the expected increased value of the property after rehab to be well in excess of the loan amount. The Redevelopment Department generated a significant portion of the Omni profits reported on its books and reports, although the facts now show that those profits were materially overstated.

Levine and others were well aware that none of the foreclosed properties could be sold on the open market for the amount of the outstanding Omni loans. A number of foreclosures were never disclosed on the Omni books as required, and some properties were resold up to five times at ever-increasing amounts. The actions of Levine and others at Omni resulted in an overvaluation of bank assets, which in turn misled Omni‘s outside auditors, its Office of the Comptroller of the Currency regulator, its FDIC insurer, the Securities and Exchange Commission, and Omni shareholders. Such practices contributed to the over 500 foreclosures and an additional 500 non-performing loans, which resulted in at least $7 million in losses to the FDIC.

The evidence showed that the HUD Section 8 Program and its tenants also suffered, because many of the Omni-funded distressed properties were not rehabbed, but rather stood vacant or were inhabited by squatters for years, corrupting other Section 8 properties and the community. Even if rented, the frequent Omni foreclosures resulted in unstable housing for Section 8 tenants, as well as increased crimes resulting from the vacant properties and transient tenants.

Additional Omni-related prosecutions to date include:

Delroy Oliver Davy, 38, Lithonia, Georgia, pleaded guilty on May 11, 2010, to bank fraud and conspiracy to commit bank, mail and wire fraud, in connection with a scheme to fraudulently obtain millions of dollars of mortgage loans from Omni and other lenders. Davy was sentenced by Judge Forrester to serve 14 years in prison.

Karim Walthour Lawrence, 33, Atlanta, Georgia, pleaded guilty on January 5, 2011, to accepting bribes from contractors he selected to rehab Omni foreclosed properties while he was an officer of Omni. He will be sentenced before United States District Judge Willis B. Hunt, Jr. A sentencing date has not yet been set by the court.

Christopher Bernard Loving, 33, McDonough, Georgia, was sentenced on August 24, 2010, to 3 years probation for making false statements to agents of the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and the FDIC in connection with an investigation of kickbacks he paid Omni officer Karim Lawrence for construction contracts.

Brent Merriell, 39, Atlanta, Georgia, was sentenced on August 3, 2010, to over 3 years in prison for making false statements to the FDIC regarding short-sales of Omni-funded properties and aggravated identity theft. Merriel‘s conviction resulted from a SIGTARP/FDIC sting operation.

“Levine and others falsified the books to conceal that Omni was crumbling, and then, leaving the FDIC holding the bag for $7 million after Omni failed. Now he will spend the next five years in prison.” said United States Attorney Sally Quillian Yates.

Federal Deposit Insurance Corporation (FDIC) Inspector General Jon T. Rymer said, “The FDIC is tasked with liquidating the assets of failed banks such as Omni. Therefore, the FDIC OIG aggressively investigates and prosecutes fraudulent activities that undermine the integrity of the financial services system and impede the FDIC’s efforts to maximize recoveries. We are pleased to have partnered with our law enforcement colleagues in bringing about this successful action.”

Christy Romero, SIGTARP Acting Special Inspector General said, “Jeffrey Levine joins a growing list of convicted bank executives who, through deliberate and excessive risk taking, contributed to the demise of a financial institution at the height of the financial crisis. Levine’s fraud scheme caused material overvaluations in Omni’s books and records that were submitted when the bank unsuccessfully sought American taxpayer funding through the Troubled Asset Relief Program (TARP). Today’s sentencing demonstrates the seriousness of these crimes and SIGTARP’s unwavering commitment to protect the American taxpayers’ investment in the TARP program.”

HUD Acting Inspector General Michael P. Stephens said, “Mortgage fraud and white collar crimes strike at the economic heart of the American system. To the extent that we can uncover and prosecute these crimes, it is to everyone’s benefit, and with the support of the people and working together, law enforcement will continue to make gains in the fight against these criminals.”

Martin D. Phanco, Postal Inspector in Charge of the Atlanta Division, said, “It is a difficult task to follow the circuitous paper trail of complex white collar crimes. Our investigators, working with the other federal agencies in this case, found hard evidence behind one of our area’s most significant bank failures, and have meticulously gathered that evidence which has resulted in the court actions today. A failed bank has ripple effects on the community, and hopefully these prosecutions will send a powerful message to those who might consider such fraud.”

These cases are being investigated by Special Agents of a Mortgage Fraud Task Force formed for Omni-related cases, made up of the Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG), Housing and Urban Development Office of Inspector General (HUD-OIG), the United States Postal Inspection Service, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), and the Federal Bureau of Investigation. The Task Force is continuing a number of Omni-related investigations, including inquiries related to Omni’s application for Troubled Asset Relief Program (TARP) funds.

Assistant United States Attorneys Gale McKenzie and Christopher C. Bly prosecuted the case.

For further information please contact Sally Q. Yates, United States Attorney, or Charysse L. Alexander, Executive Assistant United States Attorney, through Patrick Crosby, Public Affairs Officer, U.S. Attorney’s Office, at (404) 581-6016. The Internet address for the HomePage for the U.S. Attorney’s Office for the Northern District of Georgia is www.justice.gov/usao/gan.

This investigation is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of! financial crimes.

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Allison Tussey

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4 responses to Banker Ignored Requirements That Would Have Alerted Others to Massive Mortgage Fraud

  1. Thanks for your thorough insight of the Omni situation. I always wonder how these things continue to happen. Luckily proper measures have been taken for their actions.

    “It is a difficult task to follow the circuitous paper trail of complex white collar crimes. Our investigators, working with the other federal agencies in this case, found hard evidence behind one of our area’s most significant bank failures”

  2. Vanessa Jeffries April 28, 2011 at 3:19 am

    “to those who might consider committing such crimes”. With a lack of vigilance on the part of the FDIC and the government handing out bailout money like candy, expect more crooks like these in the future

  3. Next one on the list..United Community Bank..

  4. Age 70??… 5 year sentence???… that might turn out to be a life sentence.

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