Five Sentenced in $20 Million Bank Fraud
Defendants Include a Real Estate Developer, a Loan Officer, a Mortgage Broker, and an Escrow Officer in Cases Stemming from the Collapse of Desert Sun Development in Bend, Oregon
|U.S. Attorney’s Office December 12, 2013|
EUGENE, OR—Over the past two days, Chief U.S. District Judge Ann Aiken sentenced five defendants, including a real estate developer, a loan officer, a mortgage broker, and an escrow officer, for a variety of mortgage and loan fraud charges arising out of the collapse of Desert Sun Development (DSD), a company previously headquartered in Bend, Oregon. From 2004 through 2008, DSD built commercial buildings and residential housing throughout Central Oregon. According to the court records, DSD principals and other defendants caused financial institutions to lose more than $20 million.
Tyler Fitzsimons, 35, of Gold Hill, Oregon, was sentenced to 90 months in prison for spearheading this mortgage-fraud scheme. He was also ordered to pay more than $22 million in restitution. Fitzsimons started DSD in 2004 and was its president. Co-defendant Shannon Egeland, 39, of Kuna, Idaho, was DSD’s vice president. Fitzsimons and Egeland orchestrated a commercial and residential real estate scheme. As part of the commercial real estate fraud, Fitzsimons and Egeland submitted fraudulent documents, including false financial statements, tax returns, and leases, to various banks in order to obtain financing to develop and construct many of DSD’s commercial projects. Once the loans were approved, Fitzsimons, Egeland, and others submitted additional false documents, including fictitious contracts and invoices, to the banks to obtain loan proceeds for construction costs that were claimed to be associated with the fraudulent documents. For five commercial construction projects, Fitzsimons, Egeland and others obtained more than $4.2 million in funded draw requests and performed no construction.
Fitzsimons and Egeland committed fraud with DSD’s first commercial construction loan, using the money to buy themselves Dodge Vipers rather than to construct the building as promised.
Fitzsimons and Egeland also developed DSD’s employee house program, a real estate flipping scheme, and they recruited DSD employees, mortgage brokers, a loan officer, and a loan processor to help push through bad loans for participants of the scheme. Under the scheme, Fitzsimons and Egeland promised to build or sell homes at cost, and the participants agreed to flip or sell the homes and split any profit with DSD. Because most of the participants could not qualify for the loans, Fitzsimons and Egeland, among other things, undermined the loan approval process by “seasoning” or falsely inflating participants’ bank accounts through temporary deposits of DSD money. They also provided participants with undisclosed, short-term loans and submitted other fictitious documents, including letters explaining employment, large or recent deposits, and bonuses, to the banks funding the loans. As part of his guilty plea, Egeland admitted that he seasoned his own bank account with DSD money to obtain a $1.9 million construction loan to build a 22,000 square foot home in Powell Butte, Oregon. In the end, most of the homes involved in the flipping scheme were either only partially constructed or not constructed at all. Many of the properties were foreclosed upon or short sold.
Fitzsimons and Egeland used their ill-gotten gains to live an extravagant lifestyle. Among other things, they purchased large homes in Powell Butte, Oregon; Dodge Vipers, a Ferrari, a Hummer, BMWs, Mercedes; and a Malibu Wakesetter boat.
“The illegal actions of these defendants exemplify the conduct that wreaked havoc in the mortgage, financial, and real estate industries for the past several years,” said U.S. Attorney Amanda Marshall. “Banks were not the only losers in this case. Everyone lost. The effects of defendants’ large scale fraud were dramatic—the local housing market crashed, people lost their jobs, communities were littered with partially finished developments, and homes, lending markets constricted, and banks suffered millions in losses. Real estate, bank, and financial insiders who commit fraud will be held accountable.” Marshall thanked the Federal Bureau of Investigation, the Internal Revenue Service, and the State of Oregon-Division of Finance and Corporate Securities, for their investigative efforts.
Egeland’s sentencing hearing is set for January 29, 2014, at 11:30 a.m.
Others sentenced for their role in the scheme include Jeremy Kendall, 36, of Camano Island, Washington; Jeffrey Sprague, 50, of Bend, Oregon; Shaun Little, 44, of Bend, Oregon; and Teresa Ausbrooks, 51, of Farmington, New Mexico.
Kendall was sentenced to 18 months in prison and was ordered to pay more than $22 million in restitution for his role in the fraud. Kendall, a DSD employee and officer manager, at Fitzsimons’s and Egeland’s direction, created and submitted fraudulent documents to various financial institutions to gain financing for various DSD projects. Kendall was also involved in seasoning bank accounts, including his own, for individuals involved in DSD’s residential flipping scheme.
Sprague was sentenced to 46 months in prison and was ordered to pay $3.6 million in restitution. Sprague, a former loan officer at West Coast Bank, falsified loan applications for individuals involved in DSD’s flipping scheme by fraudulently inflating their monthly income and falsely claiming that these homes were going to be the employees’ primary residence. Sprague also knew the loan files contained forged or scanned signatures and other material misrepresentations and omissions. West Coast Bank approved and funded the loans based on the loan applications that Sprague falsified and on the other documents that Sprague submitted to the bank that he knew were false.
Shaun Little, 44, of Bend, Oregon, was sentenced to five years of probation with eight months in a halfway house for assisting participants in DSD’s flipping scheme obtain bad loans. He was also ordered to pay $191,171 in restitution. Little, a former mortgage broker, knew DSD was seasoning participants’ bank accounts and submitted a false loan application and supporting documentation to obtain a loan for a participant of DSD’s flipping scheme.
Teresa Ausbrooks, 51, of Farmington, New Mexico, was sentenced to one year and one day in prison and was ordered to pay $184,839.66. Ausbrooks, a former escrow officer, participated in DSD’s flipping scheme and executed a similar, separate scheme. She lied on home loan applications about her income and omitted liabilities, including a side agreement with Fitzsimons.
Several other defendants involved in the DSD investigation have already been sentenced. Del Barber, Jr., 44, of Spokane, Washington, and a former mortgage broker, was sentenced to 15 months in prison for creating and submitting fraudulent loan applications for participants of DSD’s flipping scheme. He was also ordered to pay $119,654 in restitution. Robert Brink, 62, of Junction City, Oregon, a former bank building inspector for Umpqua Bank, was sentenced to 12 months and one day in prison and was ordered to pay $181,276 in restitution for submitting false inspection reports to Umpqua bank for two of DSD’s commercial projects. Brink claimed construction had occurred, when, in reality, no construction had occurred, and Umpqua Bank had funded more than $700,000 in draw requests.
Michael Wilson, 61, of Merrells Inlet, South Carolina, a former DSD employee, was sentenced to five years of supervised release and community service for participating in DSD’s flipping scheme. He was also ordered to pay $303,114.95 in restitution. Garret Towne, 34, of Eugene, Oregon, a former DSD employee, and Barbara Hotchkiss, 44, of Redmond, Oregon, a former loan processor at West Coast Bank, were sentenced to probation and community service in Deschutes County Court for their roles in the DSD residential flipping scheme. They were ordered to pay $202,415 and $303,069 in restitution, respectively. Kevin Mandlin, 50, of Bend, Oregon, was sentenced to one year of probation for submitting a false document to a bank on behalf of DSD for Egeland’s home in Powell Butte, Oregon.
John Partin, a building material supplier in Bend, Oregon, is scheduled to be sentenced for his role in the fraud on March 12, 2014.
“This bold fraud scheme was born out of the housing bubble long ago, but its effects will be felt by the construction and banking businesses in Central Oregon for many years to come,” said Kevin Rickett, Acting Special Agent in Charge of the FBI in Oregon. “It’s a scam that involved losses in the tens of millions of dollars as the defendants pursued lavish lifestyles. Major mortgage fraud cases such as this one are and will continue to be a high priority for the FBI.”
Mortgage fraud weakens the economic integrity of our communities and our nation and, more significantly, hurts a broad range of people,” said Teri L. Alexander, Acting Special Agent in Charge of IRS-Criminal Investigation in the Pacific Northwest. “Criminals who try to line their own pockets through fraudulent schemes should see the prison sentences handed down in this case as proof that the harm mortgage fraud inflicts on our communities will not go unpunished. I am pleased that the IRS was part of the law-enforcement team that worked to dismantle this criminal enterprise and help bring fraudsters to justice.”
These cases were investigated by the FBI, the IRS, and the Oregon Division of Finance and Corporate Securities and are being prosecuted by Assistant U.S. Attorney Scott E. Bradford.