Charges Filed in Mortgage Fraud Scheme

admin —  March 9, 2010 — Leave a comment

Gerald James Greenfield, 64, Bloomington, Minnesota, was charged with one count of conspiracy to commit mortgage fraud through the use of wires, four counts of mortgage fraud by means of interstate wire, one count of conspiracy to commit concealment money laundering, and one count of engaging in a monetary transaction with criminally derived property. Nicholas Ryan Delon Smith, 30, Prior Lake, Minnesota, was charged with one count of conspiracy to commit mortgage fraud through the use of wires, four counts of mortgage fraud by means of interstate wire, and one count of engaging in a monetary transaction with criminally derived property. The indictment was unsealed following Smith’s initial appearance in federal court in Minneapolis, Minnesota.

The indictment states that between August of 2006 and May of 2007, Greenfield and Smith conspired with an unnamed co-conspirator from Australia and others to defraud mortgage lenders out of money through the fraudulent purchase of condominiums in Sexton Lofts, Minneapolis, Minnesota by unqualified buyers at prices exceeding the condos’ true values. To that end, Greenfield allegedly portrayed himself as a representative of Australian Real Estate Development (“ARED”), while Smith, in fact, was the sole owner of two mortgage brokerage companies, Minneapolis, Minnesota based Heloc, Inc., and Heartland USA, the latter being the transitory owner of some of the units at Sexton Lofts, Minneapolis, Minnesota and the former allegedly serving as the brokerage company for several fraudulent loans in this scheme.

Specifically, in August 2006, Smith and the unnamed co-conspirator, as well as others, purportedly arranged for the sale of six Sexton Loft, Minneapolis, Minnesota condo units to unqualified buyers, who bought them for greatly inflated prices and paid for them exclusively with the proceeds of fraudulently induced loans. Smith and the co-conspirator then allegedly distributed the illegal proceeds from those sales to a colluding real estate agent in the form of “high-paid realty commissions.” The real estate agent, in turn, reportedly paid the funds to the defendants and others pursuant to the co-conspirator’s instructions.

After a business partner of the co-conspirator objected to the “commission” method of stripping proceeds from fraudulent sales, Greenfield was allegedly recruited to assist in selling future Sexton Loft, Minneapolis, Minnesota condos through a “three-step” system. The indictment states that in step one of this system, Greenfield and the co-conspirator provided Smith and others with cash to purchase condo units for prices near true market value. In step two, the step-one cash purchasers allegedly transferred ownership of the recently acquired condos to the co-conspirator.

Purportedly, in step three, the co-conspirator immediately, and sometimes within minutes of acquiring the property, sold the units to unqualified buyers recruited by Smith. Sale prices to the unqualified buyers ranged from 30 to 80 percent above those the co-conspirator had just paid for the units.

Step-three purchasers allegedly purchased the condos with funds the defendants fraudulently arranged for them to borrow from mortgage lenders throughout the country. Most of the sales to step-three purchasers generated excess cash, which the defendants then reportedly instructed the closer to hold in escrow to fund the step-one cash purchase of the next condo. The defendants also allegedly told step-three purchasers they would receive money for purchasing condos and, in some instances, would not be responsible for making monthly mortgage payments. Moreover, the defendants allegedly completed fraudulent loan applications on behalf of step-three buyers and received kickbacks from the borrowed funds. From September 2006 through April 2007, the defendants and the unnamed co-conspirator purportedly caused 13 condo units at the Sexton Lofts,  Minneapolis, Minnesota to be sold through the “three-step” system, resulting in losses exceeding $2.5 million to defrauded lenders. During the course of this fraud scheme, the defendants were allegedly responsible for at least four illegal wire transfers of money.

In addition, between 2006 through the spring of 2010, Greenfield allegedly committed money laundering by conducting financial transactions involving the proceeds of this mortgage fraud in an attempt to conceal the source and ownership of those proceeds. The indictment states that during that time period, Greenfield wired a total of $1,430,000 in illegal proceeds to the unnamed Australian co-conspirator. Allegedly pursuant to Greenfield’s instructions, the co-conspirator, in turn, wired portions of that money to a brokerage firm in the U.S.and an off-shore trust for the purpose of buying shares in a company, using the name of the co-conspirator or others. Specifically, on May 30, 2007, Greenfield allegedly caused $568,000 in proceeds from the fraud scheme to be wired to the Australian co-conspirator. Then, on June 8, 2007, Greenfield allegedly caused the co-conspirator to wire $500,000 of that money to Penson Financial Services in Dallas, Texas, for the purchase of 124,400 shares of stock in a company known as Digital Town, Inc.

As part of an investigation into possible illegal activity, an undercover law enforcement officer met with Greenfield at Manny’s restaurant in Minneapolis, Minnestota on June 30, 2009. At that meeting, Greenfield allegedly agreed to transfer to the Australian co-conspirator, on behalf of the officer, $25,000 in purported proceeds of illegal drug trafficking, the purpose of which was to launder the money. The indictment states that subsequent communications occurred, the transfer took place, and Greenfield allegedly sent to the officer on December 1, 2009, a Stock Purchase Agreement as proof the money had been converted into capital stock in Digital Town, Inc. Smith allegedly engaged in an illegal monetary transaction involving property derived from unlawful activity when, on December 5, 2006, he wire transferred $25,500 from a Heloc, Inc. bank account to a third party for the purchase of an automobile for his personal use. Then, on June 8, 2007, Greenfield allegedly engaged in a similar illegal transaction when he wire transferred $500,000 to purchase 124,400 shares of capital stock in Digital Town, Inc.

If convicted, the defendants face potential maximum penalties of 20 years in prison on the interstate wire counts, 20 years for money laundering, 10 years on the illegal monetary transaction charge, and five years for conspiracy to commit mortgage fraud. All sentences will be determined by a federal district court judge.

This case is the result of an investigation by the Internal Revenue Service-Criminal Investigation Division. It is being prosecuted by Assistant U.S. Attorney David J. MacLaughlin. Also unsealed was an information filed against Brett A. Thielen, 40, Savage, Minnesota in connection to this case. The information charges Thielen with one count of conspiracy to commit mortgage fraud through wires and one count of engaging in illegal monetary transfers.

The information states that Thielen, as sole owner of JJT Development, and two other parties formed the Sexton Lofts, LLC company in 2005 for the purpose of selling residential condominiums in the Sexton Building in Minneapolis, Minnesota. Because of the agreement among the parties, Thielen purportedly had a substantial financial incentive to sell the condominium units. Thus, the information states that between August of 2006 and May of 2007, Thielen conspired to defraud mortgage lenders into providing to unqualified buyers loans exceeding true property values. He employed the three-step sales’ system described previously, which caused 13 units to be purchased by unqualified buyers and resulted in $2.5 million in losses to mortgage lenders, as indicated above. Moreover, Thielen’s charge of money laundering mirrors the illegal financial transaction charged against Greenfield, in which 124,400 shares of capital stock in Digital Town, Inc., was purchased.

An IRS affidavit filed in this case states that Thielen provided cash to individuals and companies to use to purchase the condos. The titles to the units were then transferred to Thielen through Quit Claim Deeds. Thielen, in turn, sold the units for inflated prices to straw purchasers, often on the same day as the initial transactions. The straw buyers obtained their mortgage loans because of the false information incorporated into their loan applications. Since that information included inflated appraisals, the loans exceeded property values, thus allowing Thielen money for himself as well as his straw buyers and co-conspirators.

Thielen pled guilty to the charges in the information in December of 2008.

An indictment is a determination by a grand jury that there is probable cause to believe that offenses have been committed by a defendant. A defendant, of course, is presumed innocent until he or she pleads guilty or is prove guilty at trial.

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