Orange County Man Convicted of Bank Mortgage Fraud Conspiracy and Tax Evasion

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Orange County Man Convicted of Bank Mortgage Fraud Conspiracy and Tax Evasion

Hot on the heels of the success of the movie The Big Short, the United States Attorney’s Office for the Central District of California issued a press release announcing the conviction of Momoud Aref Abaji, a Huntington Beach resident who ran Excel Investments and related entities in Santa Ana.  The DOJ press release can be found here.   The activities that were the subject of the D.O.J.’s investigation and prosecution involved the purchase of real estate using straw-buyers and loan applications with false applications.  It is unknown what plea deal he was offered, but Mr. Abaji took his case to trial.  The jury found him guilty of conspiracy to commit bank fraud and wire fraud, five counts of wire fraud, and two counts of tax evasion.  He can face a sentence of up to 200 years in prison. [Absent significant advances in medical technology, no one is likely to serve such a sentence, but the DOJ likes big numbers.]  Five other conspirators have already been convicted and one is considered a fugitive.

According to the DOJ press release:

  Abaji and his co-conspirators operated the scheme through Excel Investments and related companies in Santa Ana and then Irvine. In the scheme, Abaji and his co-conspirators identified condominium developments in which the developers were struggling to sell units and then arranged with the developers to purchase the units in return for large commissions. The developers benefitted by making it appear that their condos were selling and maintaining their value, while Abaji and his co-conspirators benefitted from the hefty commissions that they received, which were concealed from the mortgage lenders. The defendants recruited a number of straw buyers to purchase the properties as “investors,” and ensured that they qualified for financing by filing false loan applications on their behalf.

            Abaji and his co-conspirators negotiated with condominium developers in California, Florida and Arizona to purchase condominium units in exchange for a hefty commission, which they often misleadingly referred to as “marketing fees” and did not disclose to the lenders. The defendants bought units for themselves, their relatives, and on behalf of “investors” with good credit scores who served as “straw buyers.” They recruited the straw buyers by presenting the scheme as an investment opportunity that required no down payment and would generate income through rental payments.

            To obtain mortgages for the properties, Abaji and his co-conspirators prepared loan applications with false information about the straw buyers – inventing fake employment, income and assets for these individuals to qualify them for loans. They also submitted fabricated and altered W2 forms, pay stubs and bank statements in support of those applications, and they concealed the huge commissions from mortgage lenders by submitting false and misleading purchase and sale agreements and fake HUD-1 settlement statements. Based on these false statements, mortgage lenders funded more than $21 million in loans

            Many of these loans went into default, and mortgage lenders lost millions after foreclosing on the properties, with current losses estimated at approximately $9 million. The Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) purchased dozens of these loans on the secondary mortgage market and suffered losses of at least $2.37 million as a result of delinquencies, defaults and foreclosures on the properties.

Given the common sentiment that this type of fraud was at least a serious contributor to the financial crisis, one may expect the Federal judge to come down hard on the defendants in this case.  But several mitigating factors can come into play, including cooperation, acceptance of responsibility, or a relatively low level of culpability in the conspiracy.  These cases are often fought in trial with an eye towards sentencing, ensuring the judge is educated about the mitigating factors.  When a client is unlikely to avoid a jury’s guilty determination, the defendant, with an experienced attorney’s help, can sometimes obtain a relatively good result in sentencing.

Daniel Layton, the author of this post, is the principal of Tax Attorney OC.

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