William Roosevelt Cloud and Juderita Russell were convicted by a North Carolina jury following a two week trial of multiple fraud offenses arising from millions of dollars in fraudulently obtained residential mortgage loans. Cloud, a promoter in the scheme, was convicted by the jury of conspiracy related to his role in the mortgage fraud scheme, as well as three counts of mail fraud, thirteen counts of bank fraud, one count of money-laundering conspiracy, and six individual counts of money laundering. Following his conviction, Cloud was immediately taken into custody to be held without bond pending his sentencing hearing. Cloud faces a maximum statutory prison sentence of 625 years, although a lower sentence is expected based on the United States Sentencing Guidelines.

Russell, a contract underwriter for Chase Manhattan, was convicted by the jury of conspiracy related to her role in the mortgage fraud scheme, as well as three counts of mail fraud, fifteen counts of bank fraud, and one count of money-laundering conspiracy. The evidence at trial showed that Russell was paid under the table to underwrite and push through the fraudulent loan applications. With the consent of the United States, Russell was allowed to be released on bond pending her sentencing hearing. Russell faces a maximum statutory prison sentence of 555 years, although a lower sentence is expected based on the United States Sentencing Guidelines.

United States Attorney Gretchen C.F. Shappert stated, "the consequences of mortgage fraud are onerous and growing. Victims of this fraud lose their homes, suffer bankruptcies and serious financial loss, and watch their communities deteriorate as the value of their property declines. Sadly, unscrupulous professionals in the home-financing industry are often to blame. Because their crimes are sophisticated and complicated, their activities may continue for years. And as their schemes grow larger, the consequences for innocent home buyers become more severe. Today’s verdict sends a strong signal: It’s open season on the purveyors of fraud. Those who cheat and steal in the mortgage industry beware: federal agents and prosecutors have got you in our sights. The party’s over. It’s time to pay up."

The jury convictions of these defendants followed the convictions by guilty plea of nineteen coconspirators who were mentioned at trial, and many of whom testified for the prosecution pursuant to plea agreements. The co-conspirators who were convicted included three attorneys, five mortgage brokers, an

appraiser, four promoters, two builders, two recruiters, Cloud's wife and fellow promoter, and one bank insider.

THE INVESTIGATION

Mortgage brokers, such as Dan Greene of Greene Financial Services and Kim Dauria, submitted loan applications which intentionally falsified the borrower’s stated income or the intended use of the property. Licensed appraisers, such as Betty Nantz, submitted appraisal reports which hid the flip by mis-stating the current owner of the property and justifying the inflated value. Closing attorneys, such as Leon Orr and John Lee, furthered the fraud by falsely reporting the source of the borrower’s down payment on the closing settlement statement and forwarding false certified statements regarding the borrower's intended occupancy of the home.

To uncover the mortgage fraud, the Federal Bureau of Investigation and the United States Postal Inspection Service used a number of investigative techniques. Thousands of pages of documents were reviewed and dozens of witnesses were interviewed. In addition, the FBI used proactive investigative techniques to uncover this fraud as it was occurring. Operation "Clean Deed" was an undercover investigation initiated by the FBI's Charlotte Division in 2002. A suspect in a mortgage fraud investigation agreed to cooperate with law enforcement and recorded numerous conversations with promoters, attorneys, and mortgage brokers. This activity allowed for the initiation of an extensive undercover operation into the conspiracy.

The United States Postal Inspection Service had been investigating Cloud and others since 2003, while the Federal Bureau of Investigation had been investigating Russell and others in Operation Clean Deed since 2002. The two investigations were merged by the United States Attorney’s Office upon learning that all the defendants were part of a single, massive, mortgage fraud conspiracy.

THE MORTGAGE FRAUD CONSPIRACY

According to evidence presented at trial, the mortgage fraud conspiracy was complex and far-reaching, resulting in hundreds of foreclosures in Mecklenburg and other surrounding counties in North Carolina, and involved tens of millions of dollars in fraudulently obtained mortgage loans. In the scheme, Cloud and his fellow promoters usually would purchase and then flip sell homes, often the same day, generating tens of thousands of dollars with each fraudulent flip. In other cases, the promoters arranged for loan kickbacks from the builders directly.

According to evidence presented at trial, Cloud and his fellow promoters did not sell these homes on the open real estate market. Rather, they would recruit straw buyers to pretend to be true buyers for the home, who were selected on the basis of their good credit. Generally, the promoters and recruiters would promise such straw buyers that (a) they could buy an investment home with no money down; (b) they would assist the straw buyers in renting out the home and later selling it at a profit; and (c) they would pay the straw buyers at or near the time of closing for participating in the scheme. However, as the evidence at trial showed, the straw buyers were left to fend for themselves after the promoters had obtained the fraudulent loans. Every house discussed at trial went into foreclosure. The straw buyers had their credit ruined and were sometimes forced into bankruptcy.

According to evidence presented at trial, to get the fraudulent loans, the promoters and mortgage brokers would use the straw buyer's financial information to apply for a mortgage loan in the straw buyer's name. In doing so, the conspirators were shown at trial to have told any lie necessary. The most common lie was that the straw buyers were providing the down payments themselves, and thus were investing their own money into these properties. In reality, the promoters were providing the downpayments in the form of bogus cashier's checks with the straw buyer's name fraudulently inserted into the "purchased by" line. A convicted attorney testified at trial that he knew this money was not coming from the straw buyers, but accepted it anyway in order to get repeat

business from the promoters.

Another common fraudulent omission were the kickbacks the promoters provided to the straw buyers. The trial showed that such straw buyers were often paid $5,000, usually in cash, under the table in order to induce them to lend their names and credit to the scheme. These kickbacks were not disclosed to the lender, and were left off the HUD-1 Settlement Statements by the attorneys. The conspirators also lied about whether the straw buyers would be living in the homes as their primary residences. This allowed them to get better interest rates and provide smaller downpayments, allowing them to generate greater criminal profits from the scheme. To back up this lie, Cloud and his fellow promoters supplied the mortgage brokers with fictitious lease agreements fraudulently stating that the straw buyers were renting out their own homes.

Finally, among other falsehoods, the conspirators supplied the lenders with fake documents and fraudulent asset and income statements. These included fraudulent verifications of deposit and employment, fake tax returns, and phony gift letters.

According to evidence presented at trial, Russell was paid approximately $1,000 per loan application, under the table, to overlook these phony documents and other obvious deficiencies in the fraudulent loan applications. The evidence at trial showed that over the year and one-half that she was in the

conspiracy, Russell received under the table over $37,000 in checks from Greene Financial Services, deposited over $35,000 in cash into her bank account, and received another $10,000 from other mortgage brokers during this time period.

Law enforcement agents with the Federal Bureau of Investigation and the United States Postal Inspection Service participated in the investigation of the case. The case was prosecuted by Assistant United States Attorneys Kurt Meyers and Craig Randall. The investigation of this and other mortgage fraud cases is ongoing.