A little bit of fraudJerome Maynefraud
When a company or the authorities begin an investigation into
suspected fraud and misrepresentation, they usually start by
reviewing documents. One of the best ways to find out whether or
not someone misrepresented or withheld information on a loan
application is to compare the information contained in the lender's
mortgage loan file with information contained in, let's say, the
title agent's file or the real estate file.
From there, the investigators assemble their theories; they
develop a list of questions for which they need answers.
Oftentimes, to find the answers to these questions, they will begin
interviews.
The list of interviewees often includes loan officers, wholesale
lender representatives, appraisers, processors, underwriters, real
estate agents, title/closing agents, borrowers and co-workers.
Average Joes - the people who never set out to commit fraud,
misrepresent themselves or profit from misdeeds - can be brought
into an investigation. The investigators draw lines from the
primary party being investigated (let's just say, in this example,
the loan officer) to the other parties and vendors. They extract
common denominators and continue from there.
For example, let's say it's been discovered by Bobby Broker that
several loans originated by his loan officer, Slick Rick, have had
first or early payment defaults. Before tipping off Slick, Bobby
decides to audit Slicks files.
Bobby notices that many of the files contain different versions
of the same purchase agreement, multiple HUD-1s, the same landlord
for different files and different borrowers, and other
coincidences. He also notices that Slick uses a variety of vendors,
but on the files in question, he used the same lender, appraiser,
real estate agent and closer.
Bobby contacts the branch manager for the lender and the owners
of the appraisal, real estate and title companies. He shares his
findings. These respective managers and owners agree to review
their employees' files.
The lender finds that its representative in question uses the
same closer/title company on the majority of his loans - even loans
received from loan officers other than Slick. Additionally, the
branch manager uncovers identical coincidences in the
representative in question's other files. Then, the manager
contacts those subsequent managers and owners to assist in the
investigation.
As you can see, this web continues to become more and more
tangled. Loan officers, appraisers and closers can - and do - fall
under suspicion for simply being one of the vendors involved in one
or two transactions. Guilt by association is very real. This could
be you.
My knowledge of this process comes from investigations and
interviews I have conducted while rooting out fraud, dozens of
stories that I've heard from professionals in the real estate and
finance industry, and my experience as an insider who committed
fraud and was the subject of an investigation myself.
The result of the investigation of which I was the subject was
prison.
Investigating fraud is a very difficult job. The investigators
need to figure out who the people are that have information
pertinent to their investigation. Once these people are identified,
the investigators need to figure out which of these individuals
will actually cooperate, tell the truth and provide useful
information.
The investigator also has to give proper credence to the
perspective of the interviewee. Information obtained during the
course of an interview may be accurate or inaccurate, as a result
of the interviewee fabricating information or lying. Rather, the
information relayed by the interviewee is his perspective on the
truth.
In the late '90s, I was indicted for my involvement in a
conspiracy to commit mail fraud, wire fraud and money laundering -
a fancy way of saying "mortgage fraud." I was the loan officer who
took the loan applications, and received and procured the
documentation necessary to get the borrowers approved. The
borrowers were straw buyers. Their role was to get a loan to
purchase, at an inflated value, a property being sold by a
flipper.
After I was indicted, I was given the opportunity to review
volumes of interviews conducted by the FBI with the straw buyers.
The general consensus of the buyers was that during the nine months
of this fraud scam, I knew absolutely everything that was going
on.
I admitted at my guilty plea hearing - and I still admit
todaythat I was involved in a conspiracy to commit fraud; I was
guilty of that. However, in reality, the extent to which I knew
everything was less than that believed by the borrowers - a fact
that I later found out was irrelevant.
However, this shocked and angered me at the time. During my
pretrial, I had the opportunity to review volumes of interviews and
nine months worth of mortgage loan files, as well as files from the
title company/closers. I uncovered a lot of information that I had
not previously known.
Years later, it hit me. From the perspective of the straw
buyers, I did know everything. Why would they have thought
otherwise? During the nine-month scam, they were given instructions
to make an appointment with me to fill out a loan application. From
there, for the most part, the "investor" (the mastermind of the
operation), his associates and myself handled the lion's share of
the documentation.
What did they know? What was their perspective?
They knew that they were going to get $5,000, if they got
approved for a loan and purchased a home from the flipper. They
probably knew this was illegal or at least not quite on the up and
up. At this point, I think they assumed that everyone involved in
their loan process - everyone else they came in contact with - was
part of this thing that was not on the up and up. This would
include my processor, the appraiser, the closer and myself. If
there was a real estate agent involved, I'm sure it was believed by
the straw buyers that he was in on it, too.
So what did I learn from this? Being involved a little or a lot
is irrelevant to the authorities. Fraud and misrepresentation is
fraud and misrepresentation, regardless of the level of one's
involvement. Failure to act on knowledge of illegal activity is
tantamount to fraud, even if you think everyone does it or you've
seen other people do it.
If you're involved in something uncomfortable, sneaky or
suspicious, talk to somebody. Ask questions of the other parties
involved in the transaction. If you feel that people are not being
upfront with you, stop working with them. If they're doing
something illegal, turn them in.
Even if you think you would have a great defense and you know
for a fact that you, yourself, are not doing anything wrong, your
reputation and career will still be ruined if you don't act on
illegal or suspicious activity in which you are involved.
When I first started working with that group of who would later
become my co-defendants, I merely suspected impropriety. From
there, it snowballed. I justified not acting on suspicions, which
made it easier to later justify, allow and participate in blatant
fraud and misrepresentation.
You have to be diligent. You cannot turn your head just once.
Fraud just once is still fraud. If you lie down with Slick, you are
Slick.
In my case, it didn't matter how right the straw buyers were.
One cant be a little bit pregnant and one cant be a little bit in
prison.
Jerome Mayne is president of Fraudcon Inc. He is a
consultant, speaker and self-taught expert in fraudulent behavior.
He is also the author of the book, "Life Saving Lessons: The Diary
of a White-Collar Criminal." He may be reached at (612) 919-3007 or
e-mail
[email protected].
