David Lockwood was charged by information with bank fraud, conspiracy and money laundering in connection with his role in a Cincinnati, Ohio flipping scheme that has, so far, resulted in approximately 25 guilty pleas. He has agreed to waive grand jury indictment and is scheduled to plead guilty to the charges on February 22, 2006. According to court documents, actual or intended losses attributable to Lockwoodâ€™s conduct were in excess of $4,557,446 and the proceeds from the loans that were involved in money laundering transactions of over $10,000 was $747,221.
The bank fraud charges carries a maximum penalty of 30 years in prison and a fine of $1,000,000, the conspiracy charge carries a maximum penalty of 5 years in prison and a $250,000 fine and the money laundering charge carries a maximum penalty of ten years in prison and a fine of $250,000.
By way of the plea agreement filed with the court, Lockwood will admit that he conspired to defraud various federally insured financial institutions between January 2001 and December 2003 by, among other things, submitting false documents in support of a loan application.
According to the plea agreement, the scheme operated as follows:
â€¢ A person would purchase a piece of real estate at a low value, e.g., $20,000
â€¢ A buyer would be recruited â€“ usually someone that could not otherwise afford to purchase real estate or an individual interested in properties as an investor
â€¢ After finding the buyer, one of the co-conspirators would create false documents, including pay stubs, W-2 forms, bank statements and employment verifications.
â€¢ The co-conspirators would obtain a falsely inflated appraisal for the property
â€¢ The co-conspirators would submit the false loan package to the lender in order to obtain a highly inflated loan (e.g. $85,000 for the property that was originally purchased months before for $20,000).
According to the plea agreement Lockwood acted as the seller of many of the flipped properties. He would purchase the properties at market value, placing them in his name or the name of one of his companies â€“ Dan & Dave Properties or Lockwood Real Estate Holding Co. â€“ and then sell them at artificially inflated values. He would sign forms containing false information at the closings â€“ including HUD-1 forms showing the borrower contributed the down payment when, in fact, it was brought to closing by Lockwood or one of his co-conspirators. He was also aware that buyers often received undisclosed â€˜kickbacksâ€™ outside of the closing.
On August 31, 2001, David Lockwood, doing business as Lockwood Real Estate Holding Company, purchased property at 1030 McPherson Avenue, Cincinnati, Ohio for $24,000. On October 5, 2001, he sold the property to Christopher Deselms for $88,000. The HUD-1 reflected that Deselms brought $11,294.84 to closing when, in fact he did not provide the funds used at the closing. Lockwood signed the HUD-1 knowing that Deselms did not make the down payment. Payoffs out of the closing were made to Lockwood, Preferred Funding (a co-conspiratorâ€™s company) and Afterhours Properties (Deselmâ€™s company.) The inflated sales price was supported by an appraisal completed by Zajac Appraisal Service.
The guilty plea also states that on February 15, 2002, Lockwood, through his dba, purchased property at 1601 Minion Avenue, Cincinnati Ohio for $37,000 and sold the property to Michael Gruber on May 29, 2002 for $80,000. The borrower did not make the down payment reflected on the HUD. Payoffs were made to Lockwood and others. The inflated sales price was supported by an appraisal completed by Zajac Appraisal Service.