President, CEO of NY mortgage brokerage get prison for complex $100 million scam

Tuesday, September 21, 2010

2 get prison for complex $100M mortgage scam in NY

NEW YORK — Two men convicted of leading a $100 million mortgage fraud were sentenced Tuesday to prison in a scheme that amassed a cast of corrupt mortgage brokers and lawyers to dupe sellers and buyers and pocket money that banks lent people to buy real estate.

AFG Financial Group Inc. President Aaron Hand was sentenced in Manhattan to 8 1/3 to 25 years in prison. CEO Eric Shields got 5 1/2 to 16 years behind bars. The ranges reflect the possibility of time off for good behavior.

The Garden City, N.Y.-based mortgage brokerage house was a hub of fraud, prosecutors said, with spokes that reached into many corners of the mortgage business: corrupt appraisers who inflated property values, bank employees who signed off on buyers’ forged bank statements, lawyers who supposedly represented buyers but were actually in league with AFG Financial and more.

“Crime was the business of AFG,” Manhattan District Attorney Cyrus R. Vance said Tuesday. For Hand, Shields and others, he said, “it was literally their job.”

The scam left sellers empty-handed, buyers with ruined credit, homes in foreclosure and investors with worthless investment products linked to the bad mortgages, prosecutors said.

Hand, 39, and Shields, 45, were convicted in July of charges including enterprise corruption, the state’s version of racketeering.

Shields denies knowing anything about the scam and plans to appeal, said his lawyer, Michael G. Santangelo. Shields, of Media, Pa., held the company’s mortgage broker license but wasn’t there day-to-day, and some witnesses testified that they were told to keep certain documents away from him when he was there, Santangelo said.

“There was evidence that, we believe, strongly supports his contention that he is innocent,” the attorney said.

A voice mailbox for Hand’s lawyer wasn’t accepting messages Tuesday, and no one immediately responded to a message left on a cell phone for his firm. Hand is from Oyster Bay Cove, N.Y.

At least 25 other people also have been convicted or pleaded guilty in the complex scam surrounding AFG Financial Group Inc., which is separate from Cincinnati-based American Financial Group Inc., an insurance holding company that goes by AFG.

AFG Financial Group found real estate owned by people in financial trouble and then found straw buyers — who had good credit but needed cash — to front for the purchase of the property, prosecutors said.

The buyers usually didn’t know they were getting into sham transactions, prosecutors said. Instead, they were told the deals were investment opportunities that would help people save their homes, earn investors a healthy return and cost the buyers nothing but their signatures.

The conspirators would strike a deal to buy and then get a bank to finance the purchase, with the help of inflated property appraisals, phony loan qualification packages and forged W-2 forms, pay statements and bank documents. In one case, the group doctored paperwork to pass off an overgrown, vacant Bronx lot as a two-family house to get a $500,000 mortgage, prosecutors said.

Once the deals closed, lawyers who were in on the fraud put the mortgage money in escrow accounts. Then they and their accomplices simply took the money, without paying the seller or anyone else, prosecutors said.

The straw buyers were left with bad credit and no investment return, and the lender foreclosed on the seller’s property and took ownership.

In some cases, the banks had already sold investments based on the worthless mortgages.

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