Homebuilder Admits Defrauding Real Estate Investors of $22M

Allison Tussey —  April 24, 2014 — Leave a comment

Patrick J. Belzner, a/k/a Patrick McCloskey, 45, Glen Arm, Maryland, pleaded guilty to a wire fraud conspiracy, wire fraud and tax evasion. Belzer admitted advising wealthy individuals and investment advisers that in order for the McCloskey Group to obtain loans for real estate projects, the loan broker required large sums of money be deposited in an escrow bank account to show liquidity. However, the investors’ funds were removed soon after being deposited and the stolen funds to pay for their personal and business expenses, as well as to make partial repayments to earlier lenders.

According to Belzner’s plea agreement, from 2009 through August 2011, Belzner, a home builder, worked for a real estate development business known as the McCloskey Group, LLC, owned by Brian McCloskey, who was also a home builder.  During that time, Belzner conspired with McCloskey, Maryland attorney Kevin Sniffen and others to defraud investors through a fraudulent investment scheme.

Specifically, Belzner and the conspirators advised wealthy individuals and investment advisers that in order for the McCloskey Group to obtain loans for commercial real estate projects, the loan broker required that large sums of money be deposited in an escrow bank account to show liquidity. They further falsely represented that the funds would be maintained under the control of Sniffen, a licensed attorney and escrow agent; would not be used for any other purpose; and that the money would be returned to the investor, either upon the funding of the loan or after a specified period of time. In return for this temporary use of the investor’s funds, Belzner and McCloskey promised to pay substantial fees or interest.

Instead, Belzner admitted that he directed McCloskey to remove the investors’ funds soon after they had been deposited into the escrow account. Belzner and McCloskey then used the stolen funds to pay for their personal and business expenses, as well as to make partial repayments to earlier lenders, to pay fees to some of the victim investors to keep them from demanding the return of their money, and to pay the loan broker for its supposed work and expenses in attempting to locate financing sources.

Belzner and his co-conspirators attempted to conceal the fraud by: issuing false bank statements regarding the amount of escrowed funds; falsely representing in emails and by phone the balance of escrow funds and the date when the investors’ money would be returned; and returning part of the victim’s investment using funds fraudulently obtained from other investors. Belzner also wrote scripts for the conspirators to use in telephone conversations or in written communications to lull the victims and their representatives into believing that their escrow monies were safe and would be returned to them as promised in the escrow agreements, as well as to persuade victims not to pursue demands or legal action for the immediate return of their funds.

The government contends that Belzner and his conspirators’ fraudulent scheme caused losses in excess of $22 million to more than 10 victim investors.

Belzner also pleaded guilty to evasion of assessed tax payments.  In 1995, 1996 and 1998, Belzner stole $1,111,304.78 from his employer at the time, and in 1998, he stole $186,146.71 from another employer, none of which he reported as income on his tax returns for those years.  A subsequent IRS audit of those tax years resulted in the assessment of additional taxes, interest and penalties against Belzner of $1,150,935.25 for the 1995 and 1996 tax years and $246,424.50 for the 1998 and 1999 tax years.

To avoid paying those taxes, Belzner admitted that between January 2006 and June 2011, he intentionally concealed income and assets from the IRS and made no payments on his tax debt.  For example, Belzner placed his residences, other real estate and automobiles, in the names of corporations that he formed. Belzner paid his personal expenses from bank accounts he opened in the names of the corporations, including his mortgage, ground rent for a vacation home, construction costs on a house that he built, car payments, Ravens season tickets, and private school tuition. Belzner used individuals to act as straw purchasers for property that he acquired and to conduct financial and other transactions on his behalf.

At Belzner’s direction, McCloskey Group employees and others also cashed more than $175,870 in company checks made payable to them, returning the cash to Belzner or using the cash to pay Belzner‘s creditors.  Belzner also arranged for the McCloskey Group to pay many of his personal living expenses, rather than issuing him salary checks. For example, between January 2009 and June 2011, the McCloskey Group paid more than $1.5 million of Belzner’s personal expenses, including health and life insurance premiums, car, personal loan and mortgage payments, and utility and cable bills.  In February 2006 and again in January 2009, Belzner submitted forms to the IRS falsely claiming that he did not have sufficient income to make any payments on the assessed back taxes, penalties and interest. The total amount of assessed tax, interest and penalties owed by Belzner as of August 2013 was $2,619,870.

Belzner faces a maximum sentence of 20 years in prison each for wire fraud and for conspiracy; and a maximum of five years in prison for evasion of assessed tax payments.  U.S. District Judge James K. Bredar has scheduled sentencing for September 3, 2014 at 10:00 a.m.

Brian McCloskey, 42, Baltimore and Kevin Sniffen, 52, Phoenix, Maryland have each pleaded guilty to their roles in the conspiracy and are awaiting sentencing.

The guilty plea was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Stephen E. Vogt of the Federal Bureau of Investigation; and Special Agent in Charge Thomas J. Kelly of the Internal Revenue Service – Criminal Investigation, Washington, D.C. Field Office.

“For over a decade, through a combination of lies and deceit, Patrick Belzner and his coconspirators caused serious financial harm to their victims.  These individuals were focused on their own personal gratification with no regard for the consequences of their actions,” said Thomas J. Kelly, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation, Washington, D.C. Field Office. “Holding cheats such as Belzner accountable for their misdeeds, is critically important to maintaining the integrity of our economy.”

United States Attorney Rod J. Rosenstein praised the FBI and IRS – Criminal Investigation for their work in the investigation.  Mr. Rosenstein thanked Assistant United States Attorneys Jefferson M. Gray and Kathleen O. Gavin, who are prosecuting the case.

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