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17 people, two Akron companies face 147 counts. More action expected across Ohio in investigation of mortgage, securities scams that raked in millions
By Phil Trexler and Rick Armon
Beacon Journal staff writers
Published on Friday, Dec 21, 2007
It was an extensive two-year investigation into Akron-area mortgage fraud — about 800,000 pages of documents and thousands of manpower hours costing taxpayers millions.
And more is expected.
Authorities paused Thursday to announce a 147-count indictment against 17 people and two Akron investment and mortgage companies alleging a web of predatory borrowing and securities scams that allegedly bilked investors, homeowners and lenders out of at least $16 million.
More charges are promised across the state as authorities try to attack one aspect of the foreclosure and mortgage fraud crisis facing Ohio.
Authorities say Evergreen Investment, Evergreen Homes and Carnation Banc had been involved in the alleged schemes since 2002.
Those named in the indictment include Evergreen President David Willan and Carnation Banc President Craig Conner.
Willan, 37, was indicted on charges ranging from engaging in a pattern of corrupt activity to aggravated theft to money laundering to mortgage fraud. He was being held in the Summit County Jail while awaiting an arraignment hearing.
Prosecutors said Willan sold more than 300 homes in two years. Currently, more than 40 percent are in foreclosure, resulting in $6 million in losses and neighborhoods riddled with vacant homes, prosecutors said.
In all, the investigation involved about 446 properties and as much as $10 million in securities fraud, prosecutors said.
Guilty plea
In court Thursday, Conner pleaded guilty to charges of engaging in a pattern of corrupt activity and 21 counts of mortgage fraud, prosecutors said.
Conner's court records have been sealed. His attorney, Larry Whitney, did not return a message left at his office.
Summit County Prosecutor Sherri Bevan Walsh and Assistant Prosecutor Brad Gessner would not say what role, if any, Conner will play in the pending cases.
The schemes involved predatory borrowers, as opposed to predatory lending, authorities said.
''They are the financial criminals who overvalue homes, borrow money under false statements and sell securities backed by worthless second mortgages,'' Summit County Sheriff Drew Alexander said. ''These crimes against our citizens can't be ignored anymore than we can ignore vacant, abandoned houses that blight our neighborhoods.''
The investigation is ongoing and involves county authorities, Akron and Cuyahoga Falls police, the Ohio Attorney General's Office and Ohio Department of Commerce.
Pension-fund investment
Attorney General Marc Dann told re
porters that the scheme even touches on some state employee pension funds. He said the state is looking at bringing a civil case on behalf of the funds, which invested in companies that had purchased investment bonds connected to the fraud scheme.
Dann said the indictments and lawsuits will continue across the state, with hundreds being charged or sued in related and unrelated cases.
He said authorities cannot be deterred by the complexity of the cases.
''We are bringing civil cases against appraisers, we are bringing civil cases against mortgage brokers, we are bringing civil cases against the national and international investment banks that funded operations like this here and throughout Ohio,'' Dann said.
He added: ''I can tell you, you'll be seeing indictments being unsealed all across the state in the coming months.''
Time consuming
The probe has been time consuming, with one mortgage transaction producing between 3,000 and 5,000 documents that had to be analyzed.
Authorities said they had to rent a high-speed copying machine to print out nearly 800,000 documents connected to the case.
''It's really a paper nightmare,'' county Sheriff's Capt. Steve Barry said.
The 66-page indictment cites instances in which some investors each had more than $100,000 taken and in which homeowners were used as part of the schemes. The scheme usually involved an uneducated home buyer with poor credit, single parents and minorities, and involved homes in Akron, authorities said.
The indictment names various Evergreen businesses, Carnation Banc, and individuals, including Willan, Conner, Daniel A. Mohler, Sandra Langer, Mandie Pugh, Nicole Pappas-Ford, Richard Borodkin, Brianna Fullerton and Daniel Ringer, all of Evergreen.
Also, Amanda Lower, Angela Soukup and Gene Luce III, all of Carnation; appraisers Joseph Pietro, John Schwinkendorf, Susan Bigley and Robert Kokai. Michelle Hyatt of First Security Title was also charged.
The indictment also names Brittain Entertainment, a company that operates Stripped, the former Dreamers Nite Club, on Brittain Road in Akron.
Authorities also have seized a 2007 Jeep Patriot, 2005 Land Rover Range Rover and a diamond and gold bracelet valued at more than $10,000.
''We've really had our eyes opened over the last two years to the different types of schemes and activities,'' Barry said. ''It's really unbelievable.''
How it worked
One scenario worked like this: A buyer would find a home for sale and offer to purchase it. If the home were valued at $25,000, the buyer would agree to pay $30,000, thrilling the homeowner.
Then, the buyer conspired with an appraiser, who would inflate the value of the property. For example, the appraiser would set the value at $79,900 and obtain a loan for the higher amount.
The buyer would pay the homeowner $30,000, provide a kickback to the appraiser and pocket the extra cash.
The mortgage would be sold to another company or bank that was unaware of the fraud. Securities would be sold, backed by worthless second mortgages.
The home would then sit vacant because there was never an intent for anyone to live there. Since no one paid the mortgage, the lender would foreclose on the property. Sometimes the same home would be repurchased and the cycle would continue.
'Straw buyers'
At other times, the fraud involved ''straw buyers'' — people who never planned to live in the home, but received a kickback for allowing the mortgage to be put in their names.
In other cases, a mortgage company would take out second mortgages without the knowledge of borrowers so they could afford to buy a home.
Donald Malarcik, an Akron attorney representing Pietro, the co-owner of Professional Home Appraisers, said Pietro did not inflate his numbers.
Malarcik said Pietro does 1,600 appraisals a year and in four years he had done less than 50 for those involved in the indictment.
''Joe has been cooperating with the authorities since he was contacted in late 2006 and his indictment comes as a shock to him and myself,'' Malarcik said. ''Joe did honest, by-the-book appraisals.''
The predatory borrowing schemes have led to numerous vacant homes and inflated property values — and higher taxes — for neighbors. Barry said.
Evergreen had been in trouble with authorities well before the indictment.
Local authorities seized Carnation Banc records in January and, at the time, confirmed that the search was related to an ongoing mortgage fraud investigation that involved Evergreen.
In June 2006, the Ohio Department of Commerce alleged that Evergreen Investment violated state laws in its sales of high interest rate investment certificates. The state alleged that the company sold investment certificates worth more than $6.1 million when it was insolvent.
The state alleged that the company's debt exceeded its assets by $267,000.
The company also has defaulted in paying back investors and filed for bankruptcy protection.
An attorney representing Evergreen in the ongoing bankruptcy did not return a call seeking comment.
Several investors who lost more than $100,000 with Evergreen, according to the indictment, declined to comment when contacted on Thursday.
One, who did not want his name used because he lost ''a considerable amount of money,'' said the indictments were not something to be happy about.
''I hope they put him in jail,'' the man said of Willan. ''I think justice is being served. I don't wish him well.''
Phil Trexler can be reached at 330-996-3717 or ptrexler@thebeaconjournal.com. Rick Armon can be reached at 330-996-3569 or rarmon@thebeaconjournal.com. Beacon Journal staff writer Betty Lin-Fisher contributed to this report.
It was an extensive two-year investigation into Akron-area mortgage fraud — about 800,000 pages of documents and thousands of manpower hours costing taxpayers millions.
Get the full article here.
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