Superseding Indictment Charges Six for Alleged Participation in Mortgage Fraud Scheme

David B. Fein, United States Attorney for the District of Connecticut, announced that a federal grand jury sitting in New Haven has returned 14-count superseding indictment charging six individuals for their participation in an alleged mortgage fraud scheme. The indictment was returned today.

The U.S. Department of Housing and Urban Development (“HUD”) provides mortgage loan insurance for qualifying residential real estate loans to individuals with low or moderate incomes. The insurance is provided through the Federal Housing Administration (“FHA”), a component of HUD, and the loans are financed through private financial institutions. Generally, the Program provides mortgage loan insurance for the purchase of one to four family properties. The Program provides mortgage insurance for the loan amount used to purchase real property.

HUD approves certain banks and mortgage companies as “direct endorsement lenders” to underwrite mortgage loans. Direct endorsement lenders submit such mortgage loans to HUD for FHA insurance. For each qualifying loan closed by direct endorsement lenders, HUD issues mortgage insurance certificates upon submission to HUD of a case binder containing, among other things, loan documents, closing materials and documents relating to the creditworthiness of the borrower.

The indictment alleges that SYED A. BABAR, also known as “Ali” and “Asad,” 28, of New London; THOMAS E. GALLAGHER, 67, of West Haven; MORRIS I. OLMER, 82, of New Haven; DAVID AVIGDOR, 56, of New Haven; NATHAN M. RUSSO, 34, of Johnston, Rhode Island, and RAB NAWAZ, 47, of Waterford, with conspiring to defraud the United States in connection with mortgage loan insurance issued by the FHA.

The superseding indictment alleges that BABAR was the de facto leader and organizer of the conspiracy. The charges allege that, between February 2007 and April 2010, BABAR, along with RUSSO, a Rhode Island-based mortgage broker; GALLAGHER, a West Haven-based real estate appraiser; OLMER, a former attorney who has not been licensed to practice since February 2007, but who held himself out to be a lawyer, and AVIGDOR, an attorney who shared a New Haven office with OLMER, engaged in a scheme to obtain millions of dollars in residential real estate loans through the use of sham sales contracts, false loan applications and fraudulent property appraisals. It is alleged that NAWAZ operated a private business in Waterford and purchased and sold real estate to straw buyers and provided other assistance to BABAR and the conspiracy.

The charges against the defendants allege that BABAR recruited and paid straw purchasers to nominally purchase homes. Members of the conspiracy then directed the straw purchasers to enter into sales contracts with the sellers of homes for a price higher than the actual price that the seller would receive. Members of the conspiracy submitted false documentation in connection with loan applications that were submitted, including fraudulent appraisals of the properties being purchased in order to justify the inflated sales price and the loan amount being sought to fund each purchase. BABAR and his co-conspirators allegedly created a fictitious construction company in order to divert fraud proceeds to it and, in some cases, to falsely justify the artificially inflated sales price of houses based on renovations purportedly made to the property that, in fact, did not occur. Members of the conspiracy then split the fraud proceeds.

Contrary to the representations made on the loan applications, it is alleged that the straw purchasers never occupied the houses as their primary residences. They defaulted on the loans they obtained and let the houses go into foreclosure.

The government alleges that this mortgage fraud scheme involved approximately 35 properties and loans obtained in the amount of approximately $10 million. Current losses from the scheme are estimated to be at least $3 million.

The defendants are each charged with one count of conspiracy, which carries a maximum term of imprisonment of five years and a fine of up to $250,000; eight counts of wire fraud, which carry a maximum term of imprisonment of 20 years and a fine of up to $250,000, on each count, and four counts of making false statements, which carry a maximum term of imprisonment of five years and a fine of up to $250,000, on each count. In addition, NAWAZ is charged with one count of obstruction of justice, which carries a maximum term of imprisonment of 10 years and a fine of up to $250,000.

On April 27, 2010, a federal grand jury returned an indictment charging BABAR with wire fraud and conspiracy offenses. He has been detained since his arrest on May 14. The other five defendants were previously arrested on criminal complaints and released on bond.

U.S. Attorney Fein stressed that an indictment is not evidence of guilt. The charges are only allegations, and the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt.

This matter is being investigated by the Federal Bureau of Investigation and the U.S. Department of Housing, Office of Inspector General. The case is being prosecuted by Assistant United States Attorney Eric J. Glover.

In July 2009, the U.S. Attorney’s Office and the Federal Bureau of Investigation announced the formation of the Connecticut Mortgage Fraud Task Force to investigate and prosecute mortgage fraud cases and related financial crimes occurring in Connecticut. In addition to investigating past mortgage fraud schemes, the Task Force is focusing on emerging crime trends that are associated with the growing tide of foreclosures, including foreclosure rescue schemes, and short sale schemes.

The Connecticut Mortgage Fraud Task Force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service-Criminal Investigation; U.S. Postal Inspection Service; U.S. Department of Housing and Urban Development, Office of Inspector General; Federal Deposit Insurance Corporation, Office of Inspector General, and State of Connecticut Department of Banking.

Citizens are encouraged to report any suspected mortgage fraud activity by calling 203-333-3512 and requesting the Connecticut Mortgage Fraud Task Force, or by sending an e-mail to ctmortgagefraud@ic.fbi.gov.

U.S. Attorney Fein encouraged homeowners who are struggling to make payments or wish to refinance homes to visit www.stopfraud.gov to research the many legitimate government programs that exist to help. Citizens also can report suspicious mortgage activity and financial fraud crimes through this website.

Also, for more information on avoiding foreclosure and foreclosure scams, citizens may visit www.hud.gov/foreclosure.

More information on mortgage fraud can be found at www.fbi.gov/hq/mortgage_fraud.htm.