2 Sentenced for $2.5M Mortgage Fraud Scheme

Allison Tussey —  November 19, 2010 — 8 Comments

Christopher Glenn Kennedy, 31, Prior Lake, Minnesota, and Beau Wesley Gensmer, 29, Prior Lake, Minnesota, were sentenced in federal court in Minneapolis for their roles in a scheme that defrauded mortgage lenders out of more than $2.5 million by causing them to make loans based on false information.

Kennedy was sentenced by United States District Court Judge David S. Doty to 48 months in prison on one count of wire fraud and one count of money laundering in connection to that crime. On November 10, 2010, Judge Doty sentenced Gensmer to 36 months in prison on the same charges. Both men were indicted on April 21, 2010, and pleaded guilty in August of 2010. A third co-defendant has pleaded guilty in the case and awaits sentencing.

In their respective plea agreements, Kennedy and Gensmer admitted that from July of 2007 to September of 2008, they executed the mortgage-fraud scheme. In April of 2007, a multi-unit condominium building was built in Prior Lake by a development company owned by one of Gensmer‘s relatives. The units were listed for sale but were removed from the market after only a couple were purchased. Later, during the summer of 2007, Kennedy and Gensmer solicited three individuals to purchase multiple condominium units as “investments.” Kennedy and Gensmer assured the “investors” they would pay nothing to buy the properties because the down payments and monthly mortgage payments would be provided to them by the two of them.

Moreover, they recruited the investors by telling them the condos would be rented for a time but ultimately sold at a profit, and that the investors would share in that profit.

In order for the investors to qualify for mortgage loans, Kennedy and Gensmer caused accountants to prepare tax returns that reflected inflated income figures. Those returns and other fraudulent documents were then submitted to potential mortgage lenders by the two men. They also temporarily deposited money into the bank accounts of some of the investors to make it appear to potential lenders that the investors had more cash on hand than they actually did. As a result of those actions, ten mortgage lenders funded the purchase of 18 condominium units by the three investors. Eventually, Kennedy and Gensmer stopped supplying the property
purchasers with monthly mortgage payments, causing the loans to go into default and then into foreclosure.

Following the sentencing, Ralph S. Boelter, Special Agent in Charge of the Federal Bureau of Investigation’s Minneapolis Field Office, said the aggressive investigation of mortgage fraud schemes remains a high priority for the FBI.

Kelly Jackson, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation Division’s (“IRS-CID”) St. Paul Field Office, added, “These types of crimes create a significant loss of tax revenue, drive buyers into foreclosure, leave lenders burdened with bad loans and neighborhoods with abandoned and deteriorating properties. IRS-CID is committed to pursuing individuals who create such havoc.”

The defendants in this case admitted that due to their actions, mortgage loan lenders wire transferred funds on 15 different occasions. The men also admitted that on two occasions, they used some of those fraudulently obtained funds as down payments to a title company for additional condo purchases, and that the title company was owned in part by individuals with an ownership interest in the entity that originally constructed the condo building.

This case was the result of an investigation by the FBI, the IRS-CID, and the Prior Lake Police Department. It was prosecuted by Assistant U.S. Attorneys Tracy L. Perzel and William J. Otteson.

Note, this law enforcement action is in part sponsored by the interagency Financial Fraud Enforcement Task Force. The Task Force was established to wage an aggressive, coordinated, and proactive war on financial crimes. It includes representatives from a broad range of federal agencies, regulatory authorities, inspectors neral, 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 along  with state and local partners, its members will 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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8 responses to 2 Sentenced for $2.5M Mortgage Fraud Scheme

  1. One who knows: I hope that you really know detailed facts as how “liar” loans were approved so as to be marketed and sold on Wall Street. I understand because because I worked as an underwriter for a national mortgage company. Our job was to make sure that the loan 1003’s had all of the supporting documentation so that loan could be bundled and packaged for a quick sale. We KNEW, BUT WE DID’T CARE IF THE DOCS WERE FALSIFIED! Our job was to make sure that the loan originator understood what was “needed” for us to puchase the contract. Did my bosses know, YES THEY DID! Every major competeing lender knew. What most people don’t realize is that within a few weeks we were going to sell the bad or bogus paper with the good loans. Some of the really good loans were sold to servicing companies for the highest fees. I’m in 100% agreement with you on how greed allowed us to design and market “liar” loans. Neighborhoods are being devastated. What you don’t understand is that my bosses didn’t care and they still don’t care because IT NOT THEIR NEIGHBORHOOD! If they could, they would “game” the system even more today. So please don’t tell me that I have it wrong. Main street media, who is owned by Wall Street, and our elected government officals, are committing the greatest fraud of all time by pointing the finger at the “little” people as if they did this! One cannot fool a bank. If they make a bad loan, it because their is another reason that you might not never know. When they approved bad loans, they were already betting that it would foreclose! They bought insurance (private mortgage insurance) so that they could still make money off the default. Can’t you see, they (Wall Street banks) just made a damn fool out of all of us!!!

  2. Whopper, you have it wrong. What about falsified occupancy statements (i.e. 100% financing for owner occupied homes only-not rentals)or bogus rental agreements? People used liar loans for their own greed. Many loan agents are going to jail. They should. I hope they rot there. These people have devastated neighborhoods at all socio economic levels.
    Wall Street put the product out there, but everyone thought they were so smart, and they gamed the system, and lost.

  3. Mortgage Pro: Major Wall Street backed lenders had every resource at their disposal to verify income docs. As a matter of verified fact, their underwriters and account reps encouraged local loan originators to be “creative” because they could assure them that they could get the loan though underwriters for closing! You are very wrong and you shouldn’t comment on things that you don’t know. If you would do the minimal research, you will find that these lenders didn’t care because they were packageing and selling the loans on Wall Street as AAA securitized bonds. I said if the loan products were illegal at inception, IT FRAUD forever. It doesn’t matter who did what after they were illegal. Banks should not have the Federal Government doing their dirty work for them. Think about it, NOT ONE, THAT IS NOT ONE, BANK HAVE BROUGHT CHARGES against a loan originator or small town broker! Lastly, banks have the where withall to verify any and all income. Mortgage loan applicates sign loan authorization forms that give banks permission to access ones federal tax returns. Banks didn’t care as long as the required docs, fake or not, were in the packages so that they could be sold on Wall Street. Banks could turn the mortgage into cash by selling to the billion dollars Hedge Fund pools. Those Hedge Fund were funded with international money from around the world, like China, Japan, and others. Wall Street and their large banking friends, stole all of the money. China and the rest of the World are looking for their money. The banks are telling them that the loan originators stole their money and they try to point to all of the convictions that our government has done. The banks and Wall Street know that this nothing but a big fat LIE!

  4. If anybody wants to know what really brought down the housing market, it’s pure unadulterated greed. I can’t believe what lengths people will go to for the opportunity to get rich quick. All of these mortgage scams are surely just the tip of the iceberg, but the honest citizenry are the ones that suffer the most.

  5. correct me if im wrong, but when did the big lenders ever allow someone to make up falsified tax returns, understandibly, stated loans were allowed at that time but making up false 1040s or w2, please
    they got what they deserved

  6. Realist: I’m praying for you and your brother. Your grief is shared by hundreds of broken families all across America. Doesn’t it seem strange that people who have tried all of their lives to do the right thing, all of a sudden they are totally embrassed because they have been trapped by those greedy Wall Street lenders? Don’t you and your family worry, GOD IS GOING TO TAKE CARE OF HIS OWN!

  7. Whooper, your comment hit the nail right on the head. You expressed the situation very well. My brother was just sentenced on 11/16/2010, for the same offense and dollar amount of loss.
    He was a hardworking builder who had his back to the wall with construction loans. Wall street set this whole debacle up and encouraged it. My brother was sentenced to 90 months. I am grief stricken. I just pray that you are right about judges undoing all of these harsh sentences and the justice department prosecutes the real criminals.

  8. These young men should not have pled guilty. Wall Street backed banks created these shams of loans and now they have the federal justice departments pressuring indicted indiviuals to pled guilty. Before long federal court judges are will have to undo all of these lenghty sentences that are imposing on these poor victims. It doesn’t matter how much money these young men made, it was only a small faction of the billions of dollars those greedy criminal banks made. Prosecutors parade around like they have saved the world after they have twisted the arms of these loan originators! If they really wanted to make an impact, prosecute a CEO of a major fraud infested Wall Street bank. They should use their “bully” pulpits for the good of all homeowners who are having a hard time keeping their homes. It makes me sick on the stomach, when I read that good family people who have never been in any major trouble, get used by Wall Street and are now headed to prison for something that Wall Street lenders allowed to take place. EVERY crediable news source has indicated that these crooked lenders knew of the possible fraud (they designed it) and encouraged it. How can these young men be guilty? If this was an isolated case–maybe. But, these types of federal indictment are popping up all around the country. Pro. William K. Black, a former federal saving and loan regulator, said that over 90% of these loans were fraudantly induced by the LENDERS! Please, I say please stop this maddness. The feds could lock up 99% of all loan originators because of the types of loan products that Wall Street lenders offered at the time. No doc, NINA (no doc, no assests), non-verifiable loans. These loans are fraudalent from inception and the banks are letting good people become locked up. Shame on them, but an even greater shame on our federal justice system. The rest of the world is watching this sham. I believe that there are still some God-fearing people who works for our federal government. We were founded on these principles. Shortly after the American Revoltlution, Benjamin Shay led a rebellion of poor western farmers in 1786 when banks wanted to foreclose on their farms because of bad lending practices by the banks. Bankers tried to use the state courts to do their dirty work for them. Shay’s rebellion even though unsuccessful, helped the new republic create a need for our present day Consitution. We are still the greatest country on earth and I pray that this crisis will soon end. Locking up good people only adds to our problem.

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