Business Owner Pleads Guilty in $1.5 Million Wire Fraud Scheme
|U.S. Attorney’s Office April 02, 2013|
KANSAS CITY, MO—Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that the owner of a business that provided rehab loans for distressed properties pleaded guilty in federal court today to defrauding his firm’s lender in a $1.5 million wire fraud scheme.
JonPaul “JP” Edward Sauer, 41, of Olathe, Kansas, waived his right to a grand jury and pleaded guilty before U.S. District Judge Greg Kays to a federal information that charges him with wire fraud.
Sauer is the owner of Peak Management in Lenexa, Kansas, which provides capital acquisition, financial consulting, and real estate investment services. Sauer was formerly the chief executive officer, co-owner, and co-manager of Flatirons Financial Inc., an acquisition and improvement lender that made rehabilitation loans on distressed properties, primarily in Kansas City, Missouri. Flatirons Financial was acquired by an unrelated third-party entity in late 2007. From November 2007 until August 2008, when he was terminated, Sauer continued in his management positions.
By pleading guilty today, Sauer admitted that he engaged in a wire fraud scheme from February 1, 2007 to February 14, 2008, in which Wells Fargo Foothill Inc. suffered losses of approximately $1,500,900.
According to today’s plea agreement, Flatirons Financial made draws on its line of credit with Wells Fargo Foothill of approximately $26.6 million during the period of the fraud scheme. Flatirons Financial used those funds to make loans to rehabilitate distressed properties in the Kansas City, Missouri area. Wells Fargo Foothill relied on borrowing base certificates and supporting documents that were materially false and fraudulent in allowing Flatirons Financial to continue to make draws on its line of credit.
Sauer admitted to engaging in several practices that were contrary to the loan servicing agreement with Wells Fargo Foothill in order to conceal the delinquent status of 129 loans. Sauer caused Flatirons Financial to make payment entries in its loan servicing software even though no payment was received. Often without the knowledge of its borrowers, Sauer caused Flatirons Financial to defer payments on loans that were approaching 75 days past due, adding the amount of the delinquent payments to the loan balance in such a manner that it appeared actual payments had been made. Often without the knowledge of the borrowers, Sauer caused Flatiron Financial to use construction escrow funds to make it appear that the borrowers’ delinquent loans were current, at times transferring the escrow funds for one loan of a borrower to another loan of the same or an affiliated borrower. Sauer caused Flatirons Financial to establish second mortgages for borrowers specifically to use second mortgage funds to make payments on delinquent first mortgages.
As a result of the false payment entries and payment histories, Sauer caused Flatirons Financial to prepare and submit borrowing base certificates and supporting documents at least weekly to Wells Fargo Foothill which were materially false and fraudulent. The borrowing base certificates misrepresented that loans made by Flatirons Financial were “eligible” when, in fact, the loans were in delinquent status, non-performing, not in good standing, and not “eligible” loans.
Under federal statutes, Sauer is subject to a sentence of up to 20 years in federal prison without parole, plus a fine up to $250,000. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.
This case is being prosecuted by Senior Litigation Counsel Linda Parker Marshall. It was investigated by the FBI.