Investigation Cracks Complex Mortgage Fraud Scheme

Investigation Cracks Complex Mortgage Fraud Scheme

For Immediate Release: June 22, 2011

Additional details available here.
Crooked mortgage originators targeted distressed properties, used straw buyers to rake in millions

(ST. PAUL, MN) A multi-agency, coordinated investigation initiated by the Minnesota Department of Commerce, with some help from the St. Croix County Sheriff and St. Croix County Attorney, has charged conspirators in a sophisticated mortgage fraud scheme.

Civil charges filed by the department today allege that a group of crooked mortgage originators unlawfully raked in millions of dollars in mortgage loan proceeds through a carefully-orchestrated scheme that used "straw buyers" and phony second mortgages. Owners of Mortgage Planners Inc., James Ober, Wendy Ober, and their accomplices illegally collected loan proceeds through elaborate equity stripping, using foreclosed properties by fabricating identities, falsifying documents, and soliciting unqualified buyers to pose as loan recipients.

"We will bring these conspirators to justice," said Commissioner Mike Rothman. "We will stop white collar fraud such as this mortgage scheme so that good businesses and consumers are protected from these bad actors."

These civil charges are separate in process from the criminal charges filed in Hennepin County on Tuesday, but they are the basis of that criminal case. The Department of Commerce's Enforcement Division relies on partners like the Hennepin County Attorney's office to build upon and prosecute its criminal cases, bringing bad actors in the industry it regulates to justice.

The Obers and their fraud ring doctored bank statements, created fake paystubs, and even issued fake divorce decrees to accomplish their intricate scheme, collecting tax-free earnings hand over fist. A search of the suspects' property, led by the department's Insurance Fraud Division, a law enforcement unit within the department, uncovered a specially-tailored cell phone that allowed Mortgage Planners Inc. to verify employment at fictitious businesses in order to qualify their phony straw buyers for home loans.

The Minnesota Department of Commerce has charged Eagle River, OFC Properties, Accredited Financial and RP New Horizons with making false and deceptive statements, making loans with the intent that the loans would not be repaid, and making loans without the borrower's reasonable ability to make the scheduled payments.

OFC Properties, Wendy Ober, RP New Horizons and Raul Pliego were also charged with performing real-estate broker services without a license, advertising in a misleading way, making false or misleading statements, and paying benefits to unlicensed persons that lead to the procurement of a buyer. Those charges, and the results of the department's in-depth investigation, are detailed in the attached documents.

The department is charging James Ober with advertising in a misleading way, making false or misleading statements, and paying benefits to unlicensed persons that lead to the procurement of a buyer.

"This case is a prime example of the work we do to protect consumers and ensure fair competition in the marketplace," said Rothman. "Unscrupulous mortgage activity doesn't just rip-off lenders - it affects the entire marketplace."

The Minnesota Department of Commerce's Enforcement unit investigates violations of law by companies and individuals in real estate, insurance, securities, debt collection and more than 20 other industries. Actions can range from license suspension and revocation to steep fines. The companies and individuals in this case could be subject to civil penalties of up to $10,000 per violation. A prehearing conference on the matter will be help on September 7, 2011 at 1:30 p.m. at the Office of Administrative Hearings.

In addition, investigators from the department's Enforcement unit are increasingly referring their cases to criminal prosecutors, including county attorneys and the U.S. Attorney, to ensure the worst offenders get jail or prison time for their crimes.

"Consumers may not realize it, but a growing number of the white collar criminal cases they read about in the newspaper began at the Commerce Department," Rothman said. "Our investigations have uncovered hundreds of white collar schemes and put hundreds of bad actors out of business."

Last year alone, the Commerce Department's Enforcement unit took action against 508 companies and individuals and assessed nearly $4.8 million in fines. More than 200 of those actions were against individuals or entities in the real estate, mortgage or appraisal industries.
"Our involvement in these cases doesn't stop with a fine or license suspension," Rothman said. "Our investigators work closely with law enforcement, including our own Insurance Fraud unit, and criminal prosecutors to make sure the criminals in the industries we license are brought to justice."

The following are summaries of Commerce cases that included work from both the Enforcement Division and Insurance Fraud Division resulted in criminal charges:

Cynthia Strand - Forest Lake real estate closer Cynthia Strand pleaded guilty in Washington County to two counts of theft by swindle and three counts of theft by false representation April 27. She will be sentenced on July 29. The department initiated an investigation into Strand's business practices in October 2009 after receiving a complaint from an attorney representing a bank that claimed funds given to SCS at a closing in 2007 were allegedly not used to pay off the first mortgage on the property as the funds were intended to do.  After an investigation, the department charged Strand with misappropriating more than $1.1 million in at least 42 real estate transactions and converting the funds for her own personal use.  The department has suspended Strand's title insurance producer, real estate closer and notary licenses and may assess a civil penalty in the case. Strand had been charged with 34 felony counts of financial fraud last summer involving property closing fees and transactions of more than $1 million. She faces 49 to 68 months in prison for her actions.

Travis Magdalena Scott -- In April, Travis Magdalena Scott of Eden Prairie was charged in federal court with defrauding an insurance company out of at least $7 million by submitting false claims. Magdalena Scott was charged with one count of wire fraud and one count of money laundering. From June to December of 2008, Scott allegedly submitted false insurance claims to Zurich North America and then used the proceeds for personal gain. Scott had an insurance policy with Zurich North America for his business, Security Management Technologies. The case was built on an investigation by the department's Insurance Fraud Division.

Tuttle-Olson - Also in April, Former Freeborn County Commissioner Linda Kae Tuttle-Olson, who operated a real estate closing company in Albert Lea, Olson pleaded guilty to wire fraud last week in U.S. District Court. She faces up to 20 years in federal prison. Tuttle-Olson was charged on January 10 in federal court with converting funds from escrow accounts for personal use. She purportedly operated this scam from January through June of 2010 and stole approximately $1 million. If convicted, Tuttle-Olson faces a potential maximum penalty of 20 years in prison. She faces up to 20 years in federal prison. The federal case was built on the Department of Commerce's investigation. The federal case was built on the Department of Commerce's investigation.

Kuntee Singramdoo -- In the first week of January, Kuntee Singramdoo, a Lakeville real estate closer, was sentenced in Dakota County to three years and three months in prison for embezzling more than $223,000 in real estate closing proceeds and using the money to pay off her own creditors or her family members' creditors. The Minnesota Department of Commerce uncovered the scheme during an investigation and suspended her real estate closing license, resident insurance producer license and notary public commission license.

Thomas Metzen -- In mid-January, Thomas Metzen, owner of Metzen Insurance Agency and Commercial Insurance Brokers pleaded guilty in Hennepin County District Court to 16 counts of insurance fraud. He was sentenced 270 days in the Hennepin County Workhouse and 3 years of supervised probation. An investigation by the department, in conjunction with local policy, showed that Metzen misappropriated at least $97,979 from CNA Insurance Co., for which he was appointed an agent. The department revoked Metzen's license in 2007 and ordered him to pay a civil penalty of $15,000.

Jason Eric Fischer -- On Tuesday, January 25, Jason Eric Fischer, a lawyer from Hudson, Wis., was sentenced to 50 months in prison on one count of mail fraud and one count of money laundering after investigations by the FBI and the Minnesota Department of Commerce found that Fischer orchestrated a scheme to divert more than $2 million in funds from the escrow account of his company, Real Source Title of Mahtomedi, for his own personal benefit. In addition to his criminal sentence, the department revoked Fischer's insurance producer and notary licenses and fined him $100,000

Charles Borrell -- Also in late January, former Mendota Heights insurance agent Charles Borrell of Shakopee pleaded guilty in Dakota County District Court to two counts of insurance fraud. He was sentenced to 20 days in jail and two years of probation. In late 2008, the department revoked Borrell's insurance producer license, real estate salesperson license, securities license and mortgage originator license and ordered him to pay a civil penalty of $12,500 after an investigation found that he had falsified customer information on insurance applications in order to obtain better rates for those customers.

Dennis Lee Pap -- On Friday, January 28, Dennis Lee Pap of Lynden, Washington, pleaded guilty in federal court to stealing $1.8 million from a self-insured workers' compensation association and a property and liability reinsurance company through Parthenon Risk Partners, an insurance services firm where he served as owner and president. The Department of Commerce worked together with the FBI on the case. For his crime, Pap faces a potential maximum penalty of 20 years in prison.