Mortgage fraud and Medicare/Medicaid fraud are just some of the largest white collar fraud crimes in the United States. The following information should give you some ideas on how to defend against a fraud case, but also stresses the importance of obtaining counsel who understands the intricacies of other types of fraud schemes. Whether for trial, plea or appeal of an adverse decision in a fraud case, look for experienced representation with the Federal Lawyer from the Law Firm of Shein & Brandenburg and the Federal Criminal Law Center.
Common Mortgage Fraud Schemes
(The following are excerpts from "Mortgage Fraud Boot Camp: Basic Training on Defending a Criminal Mortgage Fraud Case" by Holly A. Pierson, The Champion, September/October, 2007. Some of the information has been enhanced for clarity and additional considerations by the editor of this publication.)
Property flipping is one of the oldest and most common mortgage fraud schemes. Flipping occurs when properties are purchased and then their value is artificially inflated (often through false or fraudulent appraisals) before they are quickly resold. This process is repeated several times by the co-conspirators until eventually the properties are foreclosed by the lenders.
Equity skimming is a more complex scheme. In a common equity skimming case, the investor/fraudster uses a straw buyer (also called a nominee) buyer to obtain a mortgage loan in the straw buyer's name. After closing, the straw buyer signs the property over to the investor/fraudster in a quitclaim deed (which relinquishes all rights to the property but provides no title guaranty). The investor/fraudster rents the property out and pockets the rental payments, but he makes no payments toward the mortgage. Eventually the property is foreclosed by the lender for non-payment.
Chunking occurs when a company recruits buyers by telling them that they can be landlords or own investment property.
False down payment fraud occurs when the buyer colludes with a third party (i.e., a broker, a closing agent, the seller, etc.) to show a down payment that was not paid or whose source is disguised.
Air loans are used when either there is a non-existent or low value property.
Double selling occurs when a mortgage loan broker induces two or more lenders to fully fund an otherwise legitimate mortgage loan.
Foreclosure fraud (also known as "mortgage rescue" fraud) is a specific form of equity skimming, and it has emerged as a strong new trend as the housing market has cooled. There are several variations on the fraudulent foreclosure theme, but common to all of them is that the fraudsters identify homeowners who are at risk of defaulting on loans who are already in foreclosure.
False documentation is by far the most common aspect of all mortgage fraud schemes. False statements on the loan application are the most prevalent example of false documentation.
Appraisal fraud is a linchpin in many mortgage fraud cases. Examples of appraisal fraud include inflating comparable values or using outdated comparables, falsifying the true condition of the property, and failing to include negative factors that affect the property's true value.
Identity theft or fraud is sometimes part of these cases. In an increasing number of mortgage fraud schemes, an unsuspecting person's identity is stolen to be utilized by the straw buyers or straw sellers in the transaction.
DEFENDING THE FRAUD CLIENT
- Interview relevant participants and witnesses.
- Consider hiring a "forensic appraiser" for dollar amounts & document analysis.
- Investigate other alleged participants.
2. Assess the client's culpability and bargaining position
- This is most often done in the discovery phase of the case. Pretrial motions to dismiss, suppress evidence and other defense motions are helpful to gaining some bargaining considerations or relief.
3. Take appropriate and timely action
- A meeting with the prosecutor and investigative agents early on in the legal representation is useful in almost all circumstances if handled correctly.
- Timing is an important consideration in obtaining the full benefit of any cooperation the client is able to provide. Conventional wisdom is that federal cases get stronger for the government as time passes.
4. Tips for Mortgage Fraud Trials
- Counsel should carefully consider the risks before advancing a defense theory that "blames the industry."
- Federal prosecutors involved in these cases also advise that the defendant rarely helps his or her case by taking the stand and testifying. Prosecutors often use cross-examination of the defendant as an opportunity to tie up loose ends in the case that otherwise go unaddressed.
- A defense theory that has resonated with some prosecutors in making charging decisions and plea deals focuses on the issue of intent. A client may admit that he or she has committed certain acts (such as acting as a straw borrower or straw seller) but deny that he or she understood that the scheme was illegal or fraudulent.
- Be prepared for how the trial will affect the sentencing phase of the case as the monetary value of the fraud is significant to any outcome.
- Try to get a special verdict on monetary loss and offender conduct. (This will be helpful at sentencing and on appeal should you lose the trial.)
Other White Collar Crimes and Fraud
By Marcia Shein
- The general list of the most common white collar offenses are tax fraud, banking and loan fraud, computer and internet fraud, Medicare and Medicaid fraud, identity theft and credit card fraud, mail fraud, loan and securities fraud and computer fraud. There are other types of white collar fraud not mentioned here.
- Intent elements are critical to a person's state of mind when the fraud was committed and who helped in the fraud.
- There may be a time when a jury questionnaire is appropriate to help focus on the type of persons you want on the jury that will help understand the complicated nature of the fraud.
APPEALING A FRAUD TRIAL
- Most fraud trials last a considerable period of time.
- Appeals deal with the pretrial and trial record objections made by trial counsel; motions filed (i.e. Motions to suppress evidence and dismiss the case for lack of jurisdiction, etc.)
- Without objections, errors of the court are reviewed but under a higher standard of review in the Court of Appeals.
- If you can afford it, have an appeal attorney at trial as second chair with the trial lawyer.
- Hire an appeals attorney where a fresh look at a case can make a difference whether at the trial or not.
- Plea bargaining is a means to mitigate the potential outcome of your case.
- This is an important step to consider, especially if the evidence and discovery materials are available.
- Make sure the relevant conduct issues on value of loss, number of victims, more than minimal planning, role in the offense or other potential enhancements under the guidelines are ironed out, if possible, in the plea agreement itself. The guidelines are still required to be considered before any arguments on mitigation below the guidelines are made for sentencing purposes.
- Monetary value is a key issue in all fraud cases. This makes up the loss factors under USSG 2B1.1 and sets the base offense level before any guideline enhancements are applied to get to a final advisory guideline range. If you can get the numbers for loss ironed out in the plea, this will help when it comes to sentencing but be wary of getting a plea value that may be increased for sentencing purposes. This happens often. Clients think they are pleading to a certain monetary value by pleading to only one or two counts in the indictment. Relevant conduct considers all counts of the indictment for sentencing purposes regardless of the plea. (See USSG 1B1.3)
- If the government will not put these stipulations in the plea leave open the ability to argue any contested guideline issues.
- Prepare and file objections to the PSR with legal and technical support using guideline language and case law to support the objection. Objections without support are not helpful to the court.
- As an attorney specializing in plea bargaining, objections to PSR's, Sentencing Mitigation, and appeals, these portions of your case should be carefully prepared. Baring waivers of appeal objections on aggravating or mitigation issues are reviewable by the Court of Appeals.
Sentencing is a critical area of law in your case due to such decisions as Booker, making the guidelines advisory; and the Kimbrough and Gall cases decided by the Supreme Court allowing sentencing departures to not have to be based on extraordinary circumstances or the guidelines alone. See United States v. Booker, 543 U.S. 220 (2005), Kimbrough v. United States, 128 S.Ct. 558 (2007) and Gall v. United States, 128 S.Ct. 586 (2007).
- Sentencing mitigation memorandums prepared by a sentencing/appeal attorney should include legal, technical, and psychological issues that support a more lenient sentence than is called for by the advisory guidelines.
- Making objections for sentencing is just as important as making them for trial.
- Objections to the PSR come first and must be submitted to the probation office for resolution. Unresolved issues are argued further at sentencing and the Judge makes the final determination on how the guidelines should be applied and if a sentence below the guidelines will be given.
- We are seeing some waivers in plea agreements under Booker call for the defendant to waive mitigation arguments. It is our belief that Booker arguments cannot be waived. Two circuits have discussed this issue and disagree on whether Booker issues can be waived at all. The Fifth Circuit determined that Booker rights could not be waived and that the entire statute had to be
considered by the court in determining the sentence. See United States v. Zamora-Vallejo, 470 F.3d 592 (5th Cir. 2006).In United States v. Magouirk, 468 F.3d 942 (6th Cir. 2006) the Sixth Circuit determined that Booker could be waived.
- You can file an unresolved memorandum on objections to the PSR separate from the sentencing mitigation memorandum or together depending on if the mitigation can help the objections. Creativity is the key to success. The Federal Criminal Law Center & Law Firm of Shein & Brandenburg can represent you and help you decide what to do in complicated fraud cases.
9th Circuit says intended loss should not be reduced because victim refused to deliver all fraudulently obtained property. Defendant posed as an executive of a computer company in order to fraudulently obtain disks used in the manufacture of semiconductors. Posing as the executive, defendant ordered 12 of the disks. The seller refused to sell all 12 disks without prepayment, so defendant and the seller agreed that the disks would be delivered in three shipments of four disks. The seller discovered that defendant did not represent the computer company and contacted the FBI. The FBI made a controlled delivery of worthless material to the defendant and then arrested him. Defendant pleaded guilty to one count of wire fraud. Defendant argued that the loss for purposes of §2B1.1(b)(1) should be the value of the four disks that were to be in the first delivery. The district court instead calculated the intended loss as the value of all 12 of the disks that defendant ordered. The Ninth Circuit held that the intended loss should be the value of all 12 disks, even though defendant probably would have been able to steal only four under the deal he worked out with the seller. U.S. v. Tulaner, __F.3d__ (9th Cir. Jan. 9, 2008) No. 06-10304.
8th Circuit holds that under-represented criminal history did not justify doubling sentence. Defendant pled guilty to conspiracy to commit commercial check fraud. The district court sentenced him to 60 months' imprisonment, which represented upward variance from the advisory Guideline range of 27-33 months. The Eighth Circuit held that the sentence, which represented a near doubling of the upper limit of the advisory guideline range, was not reasonable based on the court's expressed concerns regarding punishment and adequate deterrence. The court's brief discussion focused on defendant's serious criminal history and the fact that while he was in prison, he had used the time to plan and assist in carrying out the current offense. However, these were all factors that were taken into account by the Guidelines. While it was not unreasonable for the court of find that defendant's incorrigibility warranted additional prison time, the recommended range did not so substantially under-represent the seriousness of defendant's criminal history as to justify imposing a sentence almost twice as long as the top of the advisory guideline range. U.S. v. Wiley, 509 F.3d 474 (8th Cir. 2007).
10th Circuit holds that court erred in using defendant's gain for restitution purposes. Defendant participated in a scheme to obtain mortgages and mortgage insurance for unqualified home buyers. The district court found that defendant's fraudulent conduct caused a loss to HUD, but that it could not reasonably quantify the precise amount of loss given the conflicting data submitted by the government. The court chose to estimate the loss using defendant's total gain (his commission) of $29,359.20, an undisputed amount. The court then ordered restitution in this amount as well. The Tenth Circuit held that the district court abused its discretion in using the gain to impose restitution, because restitution must be based on actual loss. Although gain may be used to determine a defendant's offense level under the Guidelines (if it more closely reflects actual harm than actual loss does), it is not an appropriate estimate of loss when determining the amount of restitution under USSG §5E1.1 or the MVRA. U.S. v. Galloway, __F.3d__ (10th Cir. Dec. 7, 2007) No 06-1487.
3rd Circuit says erroneous use of "reasonable doubt" standard made sentence unreasonable. Defendants were convicted of fraud. At sentencing, the judge found that loss amounts should be based on proof beyond a reasonable doubt. The Third Circuit reversed. Post-Booker, a court must continue to calculate a defendant's Guideline sentence in the same way it would have before Booker. The standard of proof under the Guidelines for sentencing facts continues to be a preponderance of the evidence. The court here erred in calculating the sentencing range according to its assessment of the amount provided beyond a reasonable doubt. The judge also failed to specify even a reasonable estimate of the loss amount for each defendant. These mistakes made the resulting sentence unreasonable. U. S. v. Ali, 508 F.3d 136 (3d Cir. 2007).
8th Circuit says objection after sentence not necessary to preserve claim that sentence is unreasonably long. Defendant pled guilty to conspiracy to commit commercial check fraud. The district court sentenced him to 60 months' imprisonment. Defendant argued that the court's decision to vary upward from the 27-33 months range made the sentence unreasonable. The government argued that defendant forfeited this claim of error, and that it could only be reviewed for plain error. The Eighth Circuit held that where a party asserts only the length of the sentence is unreasonable under §3553(a), a defendant is not required to object after the sentence is proposed to preserve the claim. Since a court is not required to provide advance notice of its intent to vary from the advisory guideline range, there will be cases, such as here, where the defendant first learns of the variance when the court pronounces final sentence. "To insist that the defendant object at sentencing to preserve appellate review for reasonableness would create a trap for unwary defendants and saddle district courts with the burden of sitting through an objection - probably formulaic - in every criminal case." U.S. v. Wiley, 509 F.3d 474 (8th Cir. 2007).
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