FBI in Los Angeles arrest four in large scale HUD fraud
Friday, November 9, 2007 at 11:15AM In the following press release the FBI in Los Angeles announced that Federal agents this morning (11/9/07) arrested four officers with a now-defunct Inland Empire mortgage lender on charges of defrauding the United States Department of Housing and Urban Development and private lenders by fraudulently obtaining federally insured loans and selling those notes to private lenders.
The defendants arrested today are:
- Richard Elroy Giddens , 67, of Riverside;
- John Richard Varner , 54, of Hesperia;
- Stephen Ray Harper , 50, of Ontario; and
- Katherine Ann Kilmer , 52, of Hesperia.
A seven-count indictment unsealed today charges the four arrestees and two others with conspiracy, bank fraud and tax violations. The scheme, which ran from 1997 until 2002, was run out the Mortgage One Corporation, which was based in Hesperia, and M-1 Capital Corporation, which was based in Riverside and Rancho Cucamonga. The two companies were in the business of approving, funding and then selling home mortgage loans, typically obtaining mortgage insurance of the loans from the Federal Housing Administration, which is an agency within HUD.
The indictment alleges that the defendants engaged in a conspiracy to defraud HUD by submitting fraudulent loan application documents in order to qualify the loans for FHA insurance. The indictment further alleges that Mortgage One and M-1 Capital sold the funded loans to banks using the same fraudulent documents. HUD has identified more than 850 FHA-insured loans approved by Mortgage One and M-1 Capital that went into foreclosure and made insurance claims to HUD. Investigators estimate that the losses suffered by the government and the private lenders are at least $10 million.
Three of the defendants arrested this morning are expected to make their initial appearances this afternoon before a United States Magistrate Judge in Riverside. Giddens is expected to make his initial appearance tomorrow afternoon before a United States Magistrate Judge in Los Angeles.
Two more defendants charged in the case - Ricardo Bonilla, 46, of Fontana, and Abraham Julian Rezex, 59, of Downey - are expected to self-surrender later this month.
All six defendants are charged with conspiracy and bank fraud. Giddens and Varner are charged with subscribing to a false tax return. Harper is charged with willful failure to file a tax return.
The maximum penalty for the conspiracy charge is five years in federal prison. The maximum penalty for the bank fraud charge is 30 years in prison. The maximum penalties for the tax charges range from one to three years in prison.
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until proven guilty in court.
This case is the result of an investigation by the Federal Bureau of Investigation, HUD’s Office of Inspector General, and IRS-Criminal Investigation. The investigation received assistance from the Social Security Administration’s Office of Inspector General.
Resources:Press Release
The Editor - Ian Shuter - ACFE, DMS
In a press release the FBI announced that the former president of Mortgage One Corporation in Hesperia has been convicted of four federal charges related to a scheme to defraud the United States Department of Housing and Urban Development and private lenders by fraudulently obtaining federally insured loans and selling those notes to private lenders.
John Richard Varner, 55, of Hesperia, was found guilty late Wednesday of one count of conspiracy to defraud HUD, one count of bank fraud and two counts of subscribing to false income tax returns. As a result of the convictions, Varner faces a maximum statutory sentence of 41 years in federal prison. Following the reading of the jury’s verdicts after a nearly four-week trial, United States District Judge Virginia A. Phillips revoked Varner’s bond and remanded him into custody after hearing from prosecutors that Varner is realistically facing a sentence of more than 12 years in prison, and after learning that he remained in the real estate industry following his arrest in this case in 2007.
Varner becomes the fifteenth defendant convicted in a wide-ranging investigation into fraud related to HUD-backed mortgages. Varner was at the center of a scheme that was run out Mortgage One Corporation, which was based in Hesperia, and M-1 Capital Corporation, which was based in Riverside and Rancho Cucamonga. From 1997 until 2002, the two companies were in the business of approving, funding and then selling home mortgage loans, typically obtaining mortgage insurance of the loans from the Federal Housing Administration, which is an agency within HUD. Mortgage One and M-1 Capital obtained FHA mortgage insurance for their loans without HUD review due to their status as HUD-approved Direct Endorsement Lenders. They obtained and kept Direct Endorsement Lender status by submitting false documents, including bogus audits, to HUD.
Varner and his co-defendants defrauded HUD by submitting fraudulent loan application documents in order to qualify the loans for FHA insurance. The loans went to borrowers who either did not meet the FHA requirements to qualify for the mortgages and/or were only “straw buyers.” Mortgage One and M-1 Capital sold the funded loans to banks, such as the FDIC-insured Firstar Bank, N.A. and Chase Manhattan Mortgage Corporation, using the same fraudulent documents. More than 1,000 of the 3,813 FHA-insured loans approved by Mortgage One and M-1 Capital went into foreclosure and, as a result, HUD and private lenders lost at least $23 million.
Varner was found guilty of filing false tax returns for the years 1999 and 2000 when he failed to report income that he used for personal expenses such as a Corvette, a $153,000 RV, jewelry and more than $150,000 deposited into a personal investment account.
Varner is scheduled to be sentenced by Judge Phillips on June 15. The case is the result of an investigation by the Federal Bureau of Investigation, HUD’s Office of Inspector General, and IRS-Criminal Investigation. The investigation received assistance from the Social Security Administration’s Office of Inspector General.
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