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Financial Institution Fraud and Failure Report 2006-2007

Financial Institution Fraud and Failure Report
Fiscal Years (FY) 2006 and 2007

The Federal Bureau of Investigation’s mission in the area of Financial Institution Fraud (FIF) is to identify, target, disrupt, and dismantle criminal organizations and individual operations engaged in fraud schemes which target our nation’s financial institutions. Additionally, the FBI seeks to identify, undertake, and promote prevention measures, where available, to reduce the opportunity for fraud to take place within the financial institution arena. Within white-collar crimes, FIF investigations are among the most demanding, difficult, and time-consuming cases undertaken by law enforcement. Efforts by the FBI and the Department of Justice have attained extraordinary results since the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989.

Areas of primary investigative interest relative to FIF include mortgage and loan fraud, insider fraud, check fraud, counterfeit negotiable instruments, check kiting, and financial institution failures. FIF investigations related to emerging technologies and computer-related banking are taking on added significance among the nation’s financial institutions.

Since the 1992 peak of the savings and loan crisis, the FBI has been able to refocus its investigative efforts from failed financial institution cases to other high-priority FIF matters. At the close of FY 2006, the total number of pending FIF investigations for the FBI was 4,655. Of this total, 56 failure cases, or less than 2 percent, involved criminal activity related to a failed financial institution.

At the close of FY 2007, the total number of pending FIF investigations for the FBI was 2,852. This figure does not include 1,204 mortgage fraud cases which the FBI now separates by classification from other FIF investigations. Of the total FIF cases, 43 cases, or less than 2 percent, involved criminal activity related to a failed financial institution.

As the number of failure investigations has declined, the number of major FIF investigations has remained substantial and the number of mortgage fraud cases has dramatically increased. As of FY 2007, the FBI was investigating 1,042 major FIF cases.1 This is significant in view of the fact that convictions related to major case investigations have remained constant since FY 1995, surpassing total convictions for major cases during the 1992 peak.

During the late 1980s and early 1990s, approximately 60 percent of the fraud reported by financial institutions related to bank insider abuse. Since then, external fraud schemes have replaced bank insider abuse as the dominant FIF problem confronting financial institutions. The pervasiveness of mortgage fraud, check fraud and counterfeit negotiable instrument schemes, technological advances, as well as the availability of personal information through information networks, has fueled the growth in external fraud. In many instances, the international aspects associated with many of these schemes have increased the complexity and severity in the fraud being committed.

The increased reliance by both financial institutions and non-financial institution lenders on third -party brokers has created opportunities for organized fraud groups, particularly where mortgage industry professionals are involved.

Criminal activity has become more complex and loan frauds are expanding to multi-transactional frauds involving groups of people from top management to industry professionals who assist in the loan application process. These professionals include loan brokers, appraisers, accountants, and real estate attorneys. Such transactions are sometimes hidden against a backdrop of genuine transactions which give them an appearance of legitimacy. To combat these fraudulent activities, the FBI often targets large-scale fraud operations involving hundreds of subjects in multiple jurisdictions.

The FBI continues to concentrate its efforts on organized criminal groups involved in these activities. These organized groups are often involved in the sale and distribution of stolen and counterfeit corporate checks, money orders, payroll checks, credit and debit cards, U.S. Treasury checks, and currency. Furthermore, the organized groups involved in check fraud and loan fraud schemes are often involved in illegal money-laundering activities in an effort to conceal the proceeds from their crimes. The FBI often utilizes asset forfeiture statutes to forfeit the proceeds of these fraud schemes.

For the period of April 1, 1996, through September 30, 2007, the FBI received 846,113 Suspicious Activity Reports (SARs) for criminal activity related to check fraud, check kiting, counterfeit checks, counterfeit negotiable instruments, and mortgage loan fraud. These fraudulent activities accounted for 27 percent of the 3,186,213 SARs filed by U.S. financial institutions (excluding Bank Secrecy Act violations), and equaled more than $21.4 billion in losses.2

Other fraud matters affecting the nation’s financial institutions are being classified and worked by the FBI as Corporate Fraud, Cyber Fraud, and Terrorist Financing. The results of these cases are not included in this report.

The lines between traditional banking services and other financial services now offered by financial institutions are fading. As financial institutions become less regulated and provide more financial services to the public through the sale of insurance, securities, investment products, and on-line banking, the nature of FIF will change in terms of the potential impact to the nation’s financial institutions.

The FBI has responded to these trends by providing proactive deterrents to assist the nation’s banking infrastructure in combating FIF. The FBI and the Office of the Comptroller of the Currency published Check Fraud: A Guide to Avoiding Losses, (revised in 1999 by the FBI) to assist financial institutions in identifying check fraud-related schemes. Another publication produced in 2001 by the FBI entitled: “How Financial Institutions Can Help the FBI” can assist financial institutions in preventing and reporting financial crimes as well as bank robberies.

I. FINANCIAL INSTITUTION FAILURE INVESTIGATIONS AND PERCENT OF INCREASE (DECREASE) FROM PRIOR YEAR

Since February 1986, the FBI has tracked the number of financial institution failure investigations. From a peak of 758 cases in July 1992, failure investigations have steadily declined. Since the 1992 peak, failure investigations have decreased 94.4 percent. The matrix below illustrates the number of failure investigations and corresponding percentage change by fiscal year.

FISCAL YEAR
REPORT DATE
FAILURE
INVESTIGATIONS
% CHANGE
FROM PRIOR YEAR
Sep-95 395 (-25.6%)
Sep-96 247 (-37.5%)
Sep-97 200 (-19.0%)
Sep-98 142 (-29.0%)
Sep-99 129 (-09.1%)
Sep-00 99 (-23.3%)
1-Sep 97 (- 2.1%)
2-Sep 71 (-26.8%)
3-Sep 67 (-5.6%)
4-Sep 60 (-10.4%)
5-Sep 62 (+3.3%)
6-Sep 56 (-9.7%)
7-Sep 43 (-23.2%)

The chart and graphs which follow exhibits:
(a) Financial Institution Failure Investigations for 2002 – 2007;
(b) Number of FDIC-Insured “Problem Institutions” for 2002 – 2007; and,
(c) Assets of FDIC-Insured “Problem Institutions” for 2002 – 2007.

(a) Financial Institution Failure Investigations for 2002 – 2007

Financial Institution Failure Investigations for Fiscal Years 2002 – 2007



(b) Number of FDIC-Insured “Problem Institutions” for 2002 – 2007

Number of FDIC-Insured “Problem Institutions” for Fiscal Years 2002 – 2007

“Problem Institutions”–those with financial, operational, or managerial weaknesses that threaten their continued viability. Source: FDIC Quarterly Banking Profile through Third Quarter 2007

(c) Assets of FDIC-Insured “Problem Institutions” for 2002 – 2007

Assets of FDIC-Insured “Problem Institutions” for Fiscal Years 2002 – 2007

“Problem Institutions”–those with financial, operational, or managerial weaknesses that threaten their continued viability. Source: FDIC Quarterly Banking Profile through Third Quarter 2007.

II. FINANCIAL INSTITUTION FRAUD AND MAJOR CASES UNDER INVESTIGATION BY THE FBI BY FISCAL YEAR

Following the 1982 deregulation of the savings and loan industry, and in conjunction with more speculative lending practices, the FBI initiated criminal investigations of hundreds of failed financial institutions throughout the United States. Since the July 1992 peak, the number of failure investigations has steadily declined. However, total FIF and major case investigations have leveled off to pre-1992 figures. At the close of FY 2007 the total number of pending FIF and major case investigations continue to exceed levels at the beginning of the savings and loan crisis. The following matrix reflects total pending FIF and major case investigations reported during FY 2002 through FY 2007.

FISCAL YEAR
NUMBER OF PENDING FIF CASES
% CHANGE FROM PRIOR YEAR
NUMBER OF MAJOR CASES
% CHANGE FROM PRIOR YEAR
PERCENT MAJOR TO PENDING CASES
2002 7,305 -10.80% 4,287 -2.20% 58.70%
2003 5,869 -19.70% 4,027 -6% 68.60%
2004 5,125 -12.70% 3,915 -3% 76.30%
2005 5,041 -1.70% 4,135 5.60% 82.00%
2006 4,104 -18.60% 3,316 -19.80% 80.80%
2007 4,056 -1.20% 1,719 -48.20% 42.20%

The chart and graph which follows exhibit:
(a) Pending and Major Cases for FYs 2002 – 2007.

(a) Pending and Major Cases for FYs 2002 – 2007

Pending and Major Financial Institution Fraud and Failure Cases for Fiscal Years 2002 – 2007

III. STATISTICAL ACCOMPLISHMENTS FROM FBI INVESTIGATIONS IN FINANCIAL INSTITUTION FRAUD AND FAILURE MATTERS

A. CONVICTIONS/PRE-TRIAL DIVERSIONS

Total FIF convictions, excluding local convictions, continued to decrease. However, the percentage of convictions in major cases continued to increase. The matrix below is illustrative of this trend.

FISCAL YEARNUMBER OF CONVICTIONS*NUMBER OF MAJOR CONVICTIONS*% OF MAJOR TO TOTAL CONVICTIONS
2002 2,397 1,328 55.40%
2003 2,053 1,286 62.70%
2004 1,728 1,265 73.20%
2005 1,537 1,218 79.20%
2006 1,424 1,148 89.60%
2007 925 363 39.20%

* Includes pre-trial diversions and excludes local convictions.

The charts and graphs which follow exhibits:

(a) Convictions and Pre-Trial Diversions for FYs 2002 – 2007;
(b) Types of Subjects Convicted in FIF Cases During FY 2007; and
(c) Total Convictions, “Outsiders vs Insiders” for FYs 2002 – 2007.

(a): Convictions and Pre-Trial Diversions for FYs 2002 – 2007

FINANCIAL INSTITUTION FRAUD CONVICTIONS AND PRE-TRIAL DIVERSIONS
(DOES NOT INCLUDE LOCAL CONVICTIONS)
FBI FIELD OFFICEFISCAL YEAR 2002FISCAL YEAR 2003FISCAL YEAR 2004FISCAL YEAR 2005FISCAL YEAR 2006FISCAL
YEAR
2007
ALBANY 19 22 20 6 8 22
ALBUQUERQUE 10 6 7 7 12 10
ANCHORAGE 8 24 8 6 4 10
ATLANTA 78 79 64 43 59 84
BALTIMORE 27 31 31 13 15 17
BIRMINGHAM 71 38 24 16 8 16
BOSTON 33 27 13 17 42 25
BUFFALO 22 17 5 10 11 5
CHARLOTTE 42 28 48 34 70 24
CHICAGO 103 88 36 52 65 46
CINCINNATI 39 47 80 37 42 30
CLEVELAND 96 151 119 75 50 42
COLUMBIA 32 36 44 27 27 18
DALLAS 120 107 84 84 53 56
DENVER 27 19 25 17 8 15
DETROIT 93 58 39 52 32 28
EL PASO 11 2 3 5 6 6
HONOLULU 27 18 22 12 14 10
HOUSTON 64 22 16 32 5 8
INDIANAPOLIS 17 16 10 13 28 4
JACKSON 25 24 15 16 30 21
JACKSONVILLE 10 13 14 12 9 7
KANSAS CITY 29 46 34 26 27 25
KNOXVILLE 20 17 12 10 15 12
LAS VEGAS 34 25 11 7 8 3
LITTLE ROCK 51 32 29 38 31 20
LOS ANGELES 79 70 47 64 120 64
LOUISVILLE 37 22 32 21 30 23
MEMPHIS 70 37 26 34 44 34
MIAMI 56 31 25 25 18 20
MILWAUKEE 39 34 23 32 19 34
MINNEAPOLIS 45 35 28 25 25 32
MOBILE 29 27 11 20 13 4
NEWARK 38 28 38 49 32 16
NEW HAVEN 7 10 22 19 3 7
NEW ORLEANS 52 65 61 43 41 31
NEW YORK 141 113 111 90 91 85
NORFOLK 22 11 19 16 14 13
OKLAHOMA CITY 42 24 26 35 17 37
OMAHA 26 23 37 23 26 10
PHILADELPHIA 83 74 58 45 59 69
PHOENIX 0 11 8 18 6 18
PITTSBURGH 31 31 17 13 23 21
PORTLAND 45 20 21 17 22 17
RICHMOND 44 35 18 10 22 20
SACRAMENTO 14 11 10 13 41 35
SAINT LOUIS 58 67 48 55 33 19
SALT LAKE CITY 42 37 18 12 14 12
SAN ANTONIO 31 32 17 25 29 35
SAN DIEGO 31 6 8 15 7 11
SAN FRANCISCO 11 26 26 5 8 5
SAN JUAN 12 7 12 24 5 2
SEATTLE 89 40 45 30 28 20
SPRINGFIELD 40 54 23 23 17 14
TAMPA 20 19 26 29 12 15
WMFO 55 60 54 40 23 24
TOTALS 2,397 2,053 1,728 1,537 1,521 1,311

(b): Types of Subjects Convicted in FIF Cases During FY 2007*

SUBJECT TYPENUMBER OF SUBJECTS
Legal Alien 8
Illegal Alien 20
All Other Subjects 1,038
Bank Officer 88
Bank Employee 179
International or National Union Officer 1
President 1
Business Manager 2
Office Manager 2
Financial Secretary 1
Federal Employee - GS 12 & Below 1
State - All Others 1
Local Law Enforcement Officer 1
City Councilman 1
Possible Terrorist Member or Sympathizer 1
Company or Corporation 7
Local - All Others 2
Total 1,354

* Does not include pre-trial diversions or local convictions

(c) Convictions,“Outsiders vs Insiders” 2002 – 2007
(No pre-trial diversions or local convictions)

Financial Institution Fraud Convictions,“Outsiders vs Insiders,” Fiscal Years 2002 – 2007 (no pre-trial diversions or local convictions)

B. INDICTMENTS AND INFORMATIONS

For FY 2006 the total number of defendants charged by indictment or information decreased 10.9 percent from FY 2005 and 9.8 percent from FY 2006 to FY 2007. The following matrix illustrates this trend.

FISCAL YEARINDICTMENTS/INFORMATIONS*
2002 2,471
2003 1,918
2004 1,822
2005 1,543
2006 1,375
2007 1,240

* Does not include subjects charged in state or local jurisdictions.

The chart and graphs which follow exhibits:

(a) Total FIF Indictments and Informations for FYs 2002 – 2007.

(a) Total FIF Indictments and Informations for FYs 2002 – 2007

FINANCIAL INSTITUTION FRAUD INDICTMENTS/INFORMATIONS
(DOES NOT INCLUDE LOCAL INDICTMENTS/INFORMATIONS)
FBI FIELD OFFICEFISCAL
YEAR 2002
FISCAL YEAR 2003FISCAL YEAR 2004FISCAL YEAR 2005FISCAL YEAR 2006FISCAL YEAR 2007
ALBANY 21 20 11 6 5 26
ALBUQUERQUE 7 5 6 14 10 9
ANCHORAGE 4 18 11 7 10 11
ATLANTA 56 71 67 28 128 87
BALTIMORE 44 45 16 11 17 14
BIRMINGHAM 78 35 29 7 9 16
BOSTON 32 25 26 33 30 23
BUFFALO 11 11 9 7 15 3
CHARLOTTE 40 22 56 69 30 31
CHICAGO 122 78 44 82 44 29
CINCINNATI 41 46 62 45 37 32
CLEVELAND 203 57 123 74 48 41
COLUMBIA 40 52 40 32 28 13
DALLAS 145 112 80 86 49 57
DENVER 22 24 24 12 6 12
DETROIT 57 43 63 33 39 34
EL PASO 7 8 4 5 11 6
HONOLULU 35 9 26 10 18 12
HOUSTON 41 32 14 12 11 19
INDIANAPOLIS 20 10 13 27 12 6
JACKSON 23 27 19 14 47 11
JACKSONVILLE 12 16 20 22 5 4
KANSAS CITY 52 47 32 30 36 23
KNOXVILLE 21 12 9 15 14 8
LAS VEGAS 18 23 10 9 3 3
LITTLE ROCK 32 26 38 43 23 13
LOS ANGELES 113 49 83 86 87 50
LOUISVILLE 44 32 24 31 34 24
MEMPHIS 82 25 38 41 54 24
MIAMI 55 19 54 12 14 18
MILWAUKEE 48 33 23 11 28 43
MINNEAPOLIS 37 38 23 23 30 35
MOBILE 23 33 10 8 14 4
NEWARK 52 29 38 61 29 27
NEW HAVEN 8 14 34 5 6 6
NEW ORLEANS 35 83 68 59 39 22
NEW YORK 136 116 123 86 101 84
NORFOLK 25 12 24 14 14 12
OKLAHOMA CITY 29 25 28 34 29 42
OMAHA 21 32 25 20 26 11
PHILADELPHIA 103 60 55 33 87 60
PHOENIX 6 26 8 2 6 11
PITTSBURGH 24 38 9 18 26 22
PORTLAND 30 26 21 30 27 20
RICHMOND 29 40 11 21 18 31
SACRAMENTO 21 7 8 13 50 28
SAINT LOUIS 39 28 38 41 37 21
SALT LAKE CITY 38 35 20 11 17 15
SAN ANTONIO 32 33 22 38 12 43
SAN DIEGO 8 6 6 5 4 5
SAN FRANCISCO 35 40 14 6 17 6
SAN JUAN 3 17 15 26 2 6
SEATTLE 85 23 47 36 22 15
SPRINGFIELD 52 42 19 23 13 11
TAMPA 18 28 17 30 12 10
WMFO 56 55 65 44 20 39
TOTALS 2,471 1,918 1,822 1,601 1,560 1,288


C. RECOVERIES, RESTITUTIONS, AND FINES

For FY 2006 and FY 2007, statistical accomplishments for recoveries, restitutions, and fines continue to demonstrate the FBI’s investigative efforts in addressing FIF. The matrix which follows illustrates actual dollar amounts recovered for FYs 2002 – 2007.

FISCAL YEARRECOVERIESRESTITUTIONSFINES
2002 $28,164,377 $1,983,796,156 $7,614,787
2003 $15,145,174 $3,128,016,099 $35,642,324
2004 $30,561,112 $3,132,922,982 $18,104,071
2005 $31,742,313 $3,601,154,263 $19,233,834
2006 $27,171,846 $1,442,277,122 $584,363,385
2007 $32,632,568 $2,581,187,296 $12,135,541

The charts and graphs which follow exhibits:

(a) Recoveries by Office for FYs 2002 – 2007;
(b) Recoveries for FYs 2002 – 2007;
(c) Restitutions by Office for FYs 2002 – 2007;
(d) Restitutions for FYs 2002 – 2007;
(e) Fines by Office for FYs 2002 – 2007; and
(f) Fines for FYs 2002 – 2007.

(a) Recoveries by Office for FYs 2002 – 2007

FINANCIAL INSTITUTION FRAUD RECOVERIES
FISCAL YEARS 2002 –- 2007
FBI FIELD OFFICEFISCAL YEAR 2002FISCAL YEAR 2003FISCAL YEAR 2004FISCAL YEAR 2005FISCAL YEAR 2006FISCAL
YEAR 2007
ALBANY -$0- $131,656 $265,840 -$0- -$0- -$0-
ALBUQUERQUE $361,633 $609,099 -$0- -$0- $277,962 -$0-
ANCHORAGE $1,949 -$0- -$0- -$0- -$0- -$0-
ATLANTA $318,658 $712,784 $59,650 $105,750 $464,690 $76,450
BALTIMORE $36,900 $242,963 $29,379 $137,500 -$0- -$0-
BIRMINGHAM $61,000 $82,915 $51,342 $25,000 -$0- -$0-
BOSTON $236,086 $20,334 $240,424 $7,180,000 -$0- $443,408
BUFFALO $8,250 $4,450 $4,200 -$0- -$0- -$0-
CHARLOTTE $152,462 $3,065,459 -$0- $66,589 $420,130 -$0-
CHICAGO $290,372 $2,841,700 $2,510,585 $1,075,439 $3,106,394 $325,000
CINCINNATI $65,803 $470,738 -$0- -$0- -$0- -$0-
CLEVELAND $785,077 $165,937 $175,063 $64,400 $493,647 $539,277
COLUMBIA $24,674 $304,709 -$0- $115,300 $53,530 -$0-
DALLAS $873,644 $4,462,303 $806,127 $398,222 $412,701 $63,306
DENVER $8,714,188 $274,111 -$0- $82,894 $46,005 -$0-
DETROIT $158,566 $151,417 $298,923 $376,931 $38,171 -$0-
EL PASO $102,000 -$0- -$0- $176,836 -$0- -$0-
HONOLULU $288,172 $3,000 $1,500 $218,852 $2,079,468 $250,000
HOUSTON $88,505 $612,348 $31,396 $25,000 $257,018 $45,377
INDIANAPOLIS $6,185 $15,647 -$0- $30,250 -$0- $631,881
JACKSON -$0- $65,767 -$0- -$0- -$0- $127,000
JACKSONVILLE $10,075 $25,532 $151,836 $24,000 $1,457,718 $60,000
KANSAS CITY $167,006 $2,400 -$0- $88,000 -$0- $2,976,600
KNOXVILLE $3,100 $19,720 -$0- $138,312 -$0- $86,931
LAS VEGAS -$0- $22,850,495 $542,500 $2,225,000 $1,401,550 -$0-
LITTLE ROCK $792,900 -$0- -$0- -$0- $661 -$0-
LOS ANGELES $5,210 $210,612 $131,919 $282,539 $586,966 $77,050
LOUISVILLE -$0- $20,524 $63,426 -$0- -$0- -$0-
MEMPHIS $483,507 $114,008 -$0- -$0- -$0- -$0-
MIAMI $3,722,589 $82,556 $95,487 -$0- $868,500 $110,464
MILWAUKEE $744,710 $147,825 $24,542 $112,129 $380,000 $258
MINNEAPOLIS $4,000 $28,135 $70,000 $81,733 $80,500 -$0-
MOBILE $39,000 $6,020 $3,430,666 -$0- -$0- -$0-
NEWARK $1,550,531 $1,383,688 $18,485,902 -$0- $6,112 -$0-
NEW HAVEN -$0- -$0- -$0- -$0- -$0- $1,013,118
NEW ORLEANS $718,333 $425,350 $57,019 $50,723 -$0- -$0-
NEW YORK $1,347,872 $1,663,022 $178,649 $1,258,721 $12,683,476 $1,940,165
NORFOLK $23,000 $88,787 $24,435 $36,664 $25,186 $21,329
OKLAHOMA CITY $1,496,976 $397,335 $953,600 $4,001,788 -$0- -$0-
OMAHA $2,000 $251,334 -$0- -$0- -$0- -$0-
PHILADELPHIA $201,068 $657,873 $14,900 $2,897,135 $1,190,395 $80,748
PHOENIX $68,000 -$0- $29,593 $124,088 $3,668 -$0-
PITTSBURGH -$0- $162,650 $166,500 -$0- -$0- -$0-
PORTLAND $101,183 $351,900 -$0- -$0- -$0- $20,000
RICHMOND $8,800 $70,451 $583,538 $2,301 $40,666 -$0-
SACRAMENTO -$0- -$0- $435,000 -$0- -$0- -$0-
SAINT LOUIS $1,048,643 $2,400 $2,200 -$0- $101,112 -$0-
SALT LAKE CITY $17,495 $154,252 $109,067 -$0- $80,000 $21,703,684
SAN ANTONIO $2,000 $91,088 -$0- $110,170 -$0- $14,400
SAN DIEGO $313,808 $2,000 $417,000 $7,454,898 -$0- -$0-
SAN FRANCISCO -$0- $283,111 $10,000 $423,212 -$0- -$0-
SAN JUAN $99,331 -$0- -$0- -$0- -$0- -$0-
SEATTLE $1,928,854 $860,118 $41,722 $1,500 -$0- -$0-
SPRINGFIELD $50,000 -$0- -$0- $83,845 -$0- -$0-
TAMPA -$0- $1,126,558 $13,937 $6,500 -$0- $912,613
WMFO $640,262 $42,415 $53,245 $2,004,426 $615,620 $1,113,509
TOTALS $28,164,377 $45,759,496 $30,561,112 $31,486,647 $27,171,846 $32,632,568

 

(b) Recoveries for FYs 2002 – 2007

Financial Institution Fraud Recoveries for Fiscal Years 2002 – 2007


(c) Restitutions by Office for FYs 2002 – 2007

FINANCIAL INSTITUTION FRAUD RESTITUTIONS
FISCAL YEARS 2002 – 2007
FBI FIELD OFFICEFISCAL YEAR 2002FISCAL YEAR 2003FISCAL YEAR 2004FISCAL YEAR 2005FISCAL YEAR 2006FISCAL YEAR 2007
ALBANY $11,312,507 $944,303 $9,356,717 $4,016,733 $265,086 $14,694,561
ALBUQUERQUE $586,106 $2,565,093 $846,070 $88,260 $5,949,031 $884,896
ANCHORAGE $499,760 $1,758,633 $965,444 $939,237 $125,800 $2,350,846
ATLANTA $48,953,228 $273,084,188 $13,431,838 $20,369,310 $29,381,886 $47,368,158
BALTIMORE $18,166,924 $694,701,811 $54,103,859 $5,144,744 $8,837,702 $145,616,428
BIRMINGHAM $21,799,928 $8,285,970 $18,209,471 $2,886,101 $4,737,970 $2,498,248
BOSTON $2,929,969 $2,029,355 $6,082,676 $8,910,393 $9,772,524 $3,510,354
BUFFALO $302,911 $11,014,194 $18,061,674 $3,486,415 $1,539,949 $140,190
CHARLOTTE $12,844,936 $37,809,022 $2,688,851 $288,916,866 $45,567,545 $20,568,513
CHICAGO $31,435,574 $77,143,471 $30,809,210 $57,817,870 $39,217,862 $109,488,670
CINCINNATI $7,488,247 $1,614,786 $67,143,069 $4,130,390 $17,232,149 $3,255,701
CLEVELAND $4,395,079 $60,381,858 $32,315,860 $21,576,928 $6,700,793 $52,337,044
COLUMBIA $6,763,725 $5,209,817 $4,140,206 $20,229,712 $6,419,911 $3,189,619
DALLAS $22,150,376 $26,369,619 $19,217,466 $58,282,445 $79,839,087 $33,081,964
DENVER $2,743,222 $14,952,272 $3,142,330 $75,462,956 $39,422,929 $885,353
DETROIT $26,969,365 $10,860,548 $5,648,662 $4,728,759 $19,571,032 $40,794,202
EL PASO $630,323 $1,257,410 $147,054 $105,103 $1,441,720 $375,029
HONOLULU $4,981,492 $1,505,580 $9,078,900 $2,132,473 $6,368,062 $15,311,616
HOUSTON $15,702,375 $20,088,102 $28,231,008 $15,008,882 $9,232,402 $0
INDIANAPOLIS $1,920,784 $7,338,419 $6,061,430 $2,425,770 $4,738,956 $34,031,961
JACKSON $2,963,325 $158,424,141 $287,815 $1,338,902 $2,242,914 $34,483,837
JACKSONVILLE $712,651 $2,859,555 $1,392,875 $5,469,051 $30,641,398 $789,097
KANSAS CITY $2,310,880 $16,835,743 $375,676,323 $6,537,176 $13,111,880 $48,187,030
KNOXVILLE $840,908 $4,399,753 $2,857,922 $10,833,994 $18,937,156 $351,054,406
LAS VEGAS $5,997,581 $2,000,917 $1,949,382 $10,971,044 $4,951,993 $4,062,586
LITTLE ROCK $5,568,148 $15,169,291 $1,561,984 $11,231,719 $10,740,708 $3,047,583
LOS ANGELES $27,912,471 $44,610,084 $43,050,573 $29,063,385 $212,396,997 $81,003,427
LOUISVILLE $3,271,780 $472,095 $22,709,365 $2,651,743 $693,768 $4,014,421
MEMPHIS $5,192,691 $10,181,502 $4,995,365 $5,812,275 $132,468,895 $1,000,001
MIAMI $4,550,765 $28,029,624 $555,123,560 $195,905,848 $53,700,973 $681,549,378
MILWAUKEE $67,827,070 $72,501,052 $9,784,033 $1,971,539 $1,586,762 $2,914,033
MINNEAPOLIS $2,412,448 $14,655,008 $26,055,079 $2,475,753 $6,255,414 $3,305,894
MOBILE $1,739,125 $5,790,465 $1,445,148 $259,663 $1,775,797 $4,333,236
NEWARK $5,863,109 $16,217,624 $21,820,014 $31,573,654 $44,167,482 $9,470,918
NEW HAVEN $1,086,471 $1,013,398 $4,057,967 $1,965,541 $146,093 $17,014,017
NEW ORLEANS $4,214,036 $3,438,298 $2,015,167 $4,651,928 $9,592,078 $2,442,404
NEW YORK $127,861,261 $122,753,742 $1,600,914,476 $2,558,054,617 $350,061,186 $234,875,923
NORFOLK $12,776,212 $5,819,923 $4,443,407 $765,983 $883,393 $872,306
OKLAHOMA CITY $20,034,408 $1,092,842,879 $3,175,628 $19,996,284 $5,099,230 $7,794,108
OMAHA $2,216,090 $18,790,553 $6,819,109 $9,341,985 $11,185,441 $9,920,153
PHILADELPHIA $14,060,819 $17,914,633 $9,846,168 $17,870,262 $88,362,785 $386,923,421
PHOENIX $1,448,602 $314,357 $656,135 $4,415,727 $3,439,410 $3,904,585
PITTSBURGH $1,343,994,344 $99,271,139 $272,450 $1,841,359 $1,540,652 $22,850,006
PORTLAND $7,177,980 $5,239,573 $770,115 $829,438 $4,621,834 $1,683,167
RICHMOND $2,621,984 $5,580,115 $2,692,012 $3,066,125 $2,388,448 $3,732,823
SACRAMENTO $1,183,884 $1,195,146 $1,636,777 $5,839,100 $1,191,751 $7,638,355
SAINT LOUIS $2,913,067 $24,030,677 $9,774,691 $4,875,958 $14,232,869 $8,887,194
SALT LAKE CITY $2,342,030 $8,916,679 $4,852,466 $8,759,574 $3,394,095 $30,187,605
SAN ANTONIO $8,282,163 $8,343,942 $15,900,765 $10,921,237 $26,001,148 $9,908,708
SAN DIEGO $17,107,309 $1,486,626 $1,963,539 $1,277,892 $268,600 $4,357,167
SAN FRANCISCO $1,620,720 $32,684,279 $1,111,624 $24,593,409 $11,940,401 $19,515,112
SAN JUAN $620,587 $3,271,368 $14,401,590 $5,260,948 $11,450,896 $35,385
SEATTLE $13,762,511 $2,569,620 $5,288,427 $5,846,598 $8,649,688 $6,636,055
SPRINGFIELD $5,627,217 $4,017,072 $811,508 $6,163,811 $2,819,561 $772,953
TAMPA $6,566,898 $3,704,793 $4,636,093 $1,679,773 $7,779,186 $24,355,733
WMFO $6,537,780 $13,755,982 $38,491,635 $15,085,660 $7,193,844 $17,280,916
TOTALS $1,983,796,156 $3,128,016,099 $3,132,922,982 $3,625,858,302 $1,442,277,122 $2,581,187,296

 

(d) Restitutions for FYs 2002 – 2007

Financial Institution Fraud Restitutions for Fiscal Years 2002 – 2007

 

(e) Fines by Office for FYs 2002 - 2007

FINANCIAL INSTITUTION FRAUD FINES
FISCAL YEARS 2002 – 2007
FBI FIELD OFFICEFISCAL YEAR 2002FISCAL YEAR 2003FISCAL YEAR 2004FISCAL YEAR 2005FISCAL YEAR 2006FISCAL YEAR 2007
ALBANY $870,668 $182,362 $300 $3,600 $200 $5,100
ALBUQUERQUE $100 $700 $500 $300 $100 $137,766
ANCHORAGE $300 $2,950 $18,000 -$0- -$0- $56,532
ATLANTA $130,295 $68,850 $82,328 $133,800 $39,300 $40,625
BALTIMORE $82,900 $835,300 $36,246 $40,100 $101,176 $1,000
BIRMINGHAM $8,450 $29,057 $47,750 $184,194 $10,000 $100
BOSTON $31,528 $210,726 $5,300 $7,200 $118,000 $600
BUFFALO $5,424 $850 $4,000 $1,100 $10,400 $56,233
CHARLOTTE $2,000 $500 $1,900 $19,400 $45,400 $35,500
CHICAGO $234,802 $13,850 $749,366 $705,190 $1,757,142 $683,443
CINCINNATI $35,156 $1,750 $11,300 $7,900 $719,782 $21,000
CLEVELAND $39,540 $46,372 $34,974 $59,400 $640,618 $130,928
COLUMBIA $61,743 $8,500 $104,131 $235,230 $100 $2,600
DALLAS $19,430 $139,066 $134,400 $109,920 $1,073,410 $11,600
DENVER $7,050 $331,158 $114,323 $3,700 $1,200 $81,500
DETROIT $31,600 $48,751 $25,825 $29,319 $37,625 $18,800
EL PASO $2,000 -$0- $5,000 $1,200 $300 $200
HONOLULU $31,175 $5,800 $11,505,619 $3,000 $8,900 $1,525
HOUSTON $74,047 $30,100 $958,489 $15,100 $2,300 -$0-
INDIANAPOLIS $25,100 $400 $6,300 $182,235 $1,300 $12,000
JACKSON $11,076 $29,629 $6,450 $1,025 $351,059 $21,500
JACKSONVILLE $122,371 $3,500 $383,250 $6,300 $8,500 $1,500
KANSAS CITY $28,995 $1,800 $1,007,100 $1,825 $231,830,716 $2,700
KNOXVILLE $53,700 $850 $950 $300 $5,625 $8,125
LAS VEGAS $218,752 $2,975 $675 $5,000 $28,700 $200
LITTLE ROCK $27,268 $113,284 $1,900 $44,797 $5,800 $8,400
LOS ANGELES $726,666 $3,289,965 $25,500 $987,731 $819,890 $1,680,523
LOUISVILLE $266,472 $15,789 $4,550 $4,900 $85,845 $7,500
MEMPHIS $263,854 $383,083 $23,922 $62,314 $3,000 $17,200
MIAMI $23,850 $110,000 $26,300 $55,200 $4,950 $34,000
MILWAUKEE $7,192 $42,000 $4,507 $5,200 $32,400 $6,200
MINNEAPOLIS $1,179,900 $9,975 $3,600 $1,600 $6,300 $17,700
MOBILE $57,982 $2,000 $700 $20,250 $100 $300
NEWARK $805,371 $9,700 $244,826 $220,700 $42,292,500 $34,700
NEW HAVEN $600 $52,300 $6,500 $46,200 $100 $1,076
NEW ORLEANS $23,010 $128,778 $650,385 $33,600 $2,500 $467,891
NEW YORK $63,500 $779,591 $343,323 $40,050 $844,675 $2,214,346
NORFOLK $1,000 $100 $1,000 $500 $110,438 $2,309,481
OKLAHOMA CITY $3,125 $262,741 $1,073,509 $17,400 $123,600 $43,869
OMAHA $8,800 $39,129 $13,500 $5,000 $70,500 $1,406,487
PHILADELPHIA $52,600 $333,848 $43,600 $28,610 $1,049,040 $669,993
PHOENIX -$0- $425 $1,978 $6,600 $5,000 $88,900
PITTSBURGH $19,600 $25,523,600 $1,000 $5,725 $95,200 $21,675
PORTLAND $500 $2,884 $525 $400 -$0- $1,000
RICHMOND $24,600 $13,125 $4,000 $8,400 $6,200 $1,400
SACRAMENTO $33,600 $129,000 $100 $14,325 $6,525 $10,700
SAINT LOUIS $400 $22,485 $55,222 $10,051 $301,211,048 $1,346,650
SALT LAKE CITY $21,858 $74,034 $87,053 $112,400 $100 $4,400
SAN ANTONIO $8,450 $10,100 $10,600 $333,339 $9,800 $14,800
SAN DIEGO $1,625 $75 $20,569 -$0- $2,400 $225
SAN FRANCISCO $1,042,770 $1,954,134 $20,650 $2,000 -$0- $25,100
SAN JUAN $631,200 $100 $161,900 $800 $15,400 $100
SEATTLE $123,905 $53,510 $52,063 $15,270 $650,196 $306,948
SPRINGFIELD $62,212 $255,950 $7,188 $1,100 $12,400 -$0-
TAMPA $2,500 $12,998 $6,875 $1,400 $52,800 $62,700
WMFO $2,175 $21,825 $5,250 $16,100,137 $52,825 $200
TOTALS $7,614,787 $35,642,324 $18,147,071 $19,942,337 $584,363,385 $12,135,541

(f) Fines for FYs 2002 – 2007

Financial Institution Fraud Fines for Fiscal Years 2002 – 2007

 

D. SEIZURES AND FORFEITURES

Forfeiture provisions were added to the 10 banking-related violations in FY 1989. In April 2003, Congress passed the Comprehensive Asset Forfeiture Reform Act, which provided authority for the FBI and other federal agencies to seize and forfeit the proceeds of numerous Specified Unlawful Activities, including banking-related violations. These investigative tools have aided immensely in the effort to address FIF. The matrix which follows demonstrates accomplishments in these areas for FYs 2002 – 2007.

FISCAL YEARSEIZURESFORFEITURES
2002 $13,277,362 $4,013,342
2003 $7,703,435 $3,407,971
2004 $16,343,881 $14,254,838
2005 $23,746,365 $4,241,535
2006 $13,283,028 $12,498,89
2007 $27,055,895 $11,496,994

The chart and graphs which follow exhibits:

(a) Bank Fraud Seizures and Forfeitures by Office for FYs 2006 and 2007;
(b) Seizures for FYs 2002 – 2007;
(c) Forfeitures for FYs 2002 – 2007; and
(d) Mortgage Fraud Seizures and Forfeitures by Office for FYs 2006 and 2007.

(a) Bank Fraud Seizures and Forfeitures by Office for FYs 2006 and 2007

BANK FRAUD SEIZURES AND FORFEITURES FISCAL YEARS 2006 AND 2007
FBI FIELD OFFICESEIZURES FISCAL YEAR 2006SEIZURES FISCAL YEAR 2007FORFEITURES FISCAL YEAR 2006FORFEITURES FISCAL YEAR 2007
ALBANY -$0- -$0- -$0- -$0-
ALBUQUERQUE -$0- -$0- -$0- -$0-
ANCHORAGE -$0- -$0- -$0- -$0-
ATLANTA -$0- -$0- -$0- -$0-
BALTIMORE -$0- -$0- -$0- -$0-
BIRMINGHAM -$0- -$0- -$0- -$0-
BOSTON -$0- -$0- -$0- -$0-
BUFFALO -$0- -$0- -$0- -$0-
CHARLOTTE $66,260 -$0- -$0- -$0-
CHICAGO $13,910,576 -$0- -$0- $22,319,824
CINCINNATI -$0- -$0- -$0- -$0-
CLEVELAND -$0- -$0- -$0- -$0-
COLUMBIA -$0- -$0- -$0- -$0-
DALLAS -$0- -$0- -$0- -$0-
DENVER -$0- -$0- -$0- -$0-
DETROIT $2,120 -$0- $12,819 $2,120
EL PASO -$0- -$0- -$0- -$0-
HONOLULU -$0- -$0- -$0- -$0-
HOUSTON $284,379 -$0- -$0- -$0-
INDIANAPOLIS -$0- -$0- -$0- -$0-
JACKSON -$0- -$0- -$0- -$0-
JACKSONVILLE -$0- -$0- -$0- -$0-
KANSAS CITY $326,347 -$0- -$0- -$0-
KNOXVILLE -$0- -$0- -$0- -$0-
LAS VEGAS -$0- -$0- -$0- -$0-
LITTLE ROCK -$0- -$0- -$0- -$0-
LOS ANGELES $166,161 -$0- -$0- -$0-
LOUISVILLE $9,205,246 $624,421 -$0- -$0-
MEMPHIS -$0- -$0- -$0- -$0-
MIAMI -$0- -$0- -$0- -$0-
MILWAUKEE $26,931 -$0- -$0- $26,931
MINNEAPOLIS -$0- -$0- -$0- -$0-
MOBILE -$0- -$0- -$0- -$0-
NEWARK -$0- -$0- -$0- -$0-
NEW HAVEN -$0- -$0- -$0- -$0-
NEW ORLEANS -$0- -$0- -$0- -$0-
NEW YORK $13,700,000 $10,667 $13,300,000 $30,615,540
NORFOLK $103,738 -$0- $103,738 -$0-
OKLAHOMA CITY $337,321 -$0- $2,010 -$0-
OMAHA -$0- -$0- -$0- -$0-
PHILADELPHIA -$0- -$0- -$0- -$0-
PHOENIX -$0- -$0- -$0- -$0-
PITTSBURGH -$0- -$0- -$0- -$0-
PORTLAND -$0- -$0- -$0- -$0-
RICHMOND -$0- -$0- -$0- -$0-
SACRAMENTO -$0- -$0- -$0- -$0-
SAINT LOUIS -$0- -$0- -$0- -$0-
SALT LAKE CITY -$0- -$0- -$0- -$0-
SAN ANTONIO -$0- -$0- -$0- -$0-
SAN DIEGO -$0- -$0- -$0- -$0-
SAN FRANCISCO -$0- -$0- -$0- -$0-
SAN JUAN -$0- -$0- -$0- -$0-
SEATTLE -$0- -$0- -$0- -$0-
SPRINGFIELD -$0- -$0- -$0- -$0-
TAMPA -$0- -$0- -$0- -$0-
WMFO -$0- -$0- -$0- -$0-
TOTALS $38,129,078 $635,088 $13,418,567 $52,964,415


(b) Seizures for FYs 2002 – 2007

Financial Institution Fraud Seizures for Fiscal Years 2002 – 2007

(c) Forfeitures for FYs 2002 – 2007

Financial Institution Fraud Forfeitures for Fiscal Years 2002 – 2007

(d) Mortgage Fraud Seizures and Forfeitures by Office for FYs 2006 and 2007

MORTGAGE FRAUD SEIZURES AND FORFEITURES FISCAL YEARS 2006 AND 2007
FBI FIELD OFFICESEIZURES FISCAL YEAR 2006SEIZURES FISCAL YEAR 2007FORFEITURES FISCAL YEAR 2006FORFEITURES FISCAL YEAR 2007
ALBANY -$0- -$0- -$0- -$0-
ALBUQUERQUE -$0- -$0- -$0- -$0-
ANCHORAGE -$0- -$0- -$0- -$0-
ATLANTA $8,643,335 $632,483 -$0- $420,694
BALTIMORE -$0- -$0- -$0- -$0-
BIRMINGHAM -$0- -$0- -$0- -$0-
BOSTON -$0- -$0- -$0- -$0-
BUFFALO -$0- -$0- -$0- -$0-
CHARLOTTE -$0- $423,769 -$0- -$0-
CHICAGO $169,918,.93 $968,144 $18,790,950 $169,919
CINCINNATI $35,625 $11,475 -$0- -$0-
CLEVELAND -$0- -$0- -$0- -$0-
COLUMBIA -$0- -$0- -$0- -$0-
DALLAS -$0- -$0- -$0- -$0-
DENVER -$0- -$0- -$0- -$0-
DETROIT $245,801 $1,734,630 $147,612 $504,018
EL PASO -$0- -$0- -$0- -$0-
HONOLULU -$0- -$0- -$0- -$0-
HOUSTON -$0- $42,000,000 -$0- -$0-
INDIANAPOLIS -$0- -$0- -$0- -$0-
JACKSON -$0- -$0- -$0- -$0-
JACKSONVILLE $176,685 $10,293,868 -$0- $98,600
KANSAS CITY -$0- -$0- -$0- -$0-
KNOXVILLE -$0- -$0- -$0- -$0-
LAS VEGAS -$0- -$0- -$0- -$0-
LITTLE ROCK -$0- -$0- -$0- -$0-
LOS ANGELES -$0- $239,683,125 -$0- $8,125
LOUISVILLE -$0- -$0- -$0- -$0-
MEMPHIS -$0- -$0- -$0- -$0-
MIAMI -$0- -$0- -$0- -$0-
MILWAUKEE -$0- -$0- -$0- -$0-
MINNEAPOLIS -$0- -$0- -$0- -$0-
MOBILE $609,330 -$0- $595 $38,725
NEWARK -$0- -$0- -$0- $19,935
NEW HAVEN -$0- -$0- -$0- -$0-
NEW ORLEANS -$0- -$0- -$0- -$0-
NEW YORK -$0- $9,375,001 -$0- -$0-
NORFOLK -$0- -$0- -$0- -$0-
OKLAHOMA CITY -$0- -$0- -$0- -$0-
OMAHA -$0- -$0- -$0- -$0-
PHILADELPHIA -$0- -$0- -$0- -$0-
PHOENIX $1,325,795 -$0- -$0- -$0-
PITTSBURGH $55,180 $42,900 -$0- -$0-
PORTLAND -$0- -$0- -$0- -$0-
RICHMOND -$0- $127,216 -$0- -$0-
SACRAMENTO -$0- $660,990 -$0- -$0-
SAINT LOUIS $93,801 $41,275 -$0- $390,430
SALT LAKE CITY -$0- $7,700,000 -$0- -$0-
SAN ANTONIO -$0- $179,271,24 -$0- -$0-
SAN DIEGO -$0- -$0- -$0- -$0-
SAN FRANCISCO -$0- -$0- -$0- -$0-
SAN JUAN -$0- -$0- -$0- -$0-
SEATTLE $1,843,531 $248,531 -$0- -$0-
SPRINGFIELD -$0- -$0- -$0- -$0-
TAMPA $2,875,337 $2,387,355 $1,635,095 $3,051,886
WMFO -$0- $166,913,817 -$0- $1,668,288
TOTALS $15,904,421 $483,244,577 $20,574,252 $6,370,620


E. DISRUPTIONS AND DISMANTLEMENTS

As previously stated, part of the FBI’s mission in combating FIF is to disrupt and dismantle criminal organizations engaged in FIF. The matrix which follows demonstrates accomplishments in these areas for FYs 2002 – 2007.

FISCAL YEARDISRUPTIONSDISMANTLEMENTS
2002 4 9
2003 19 7
2004 43 28
2005 74 29
2006 137 57
2007 105 58


F. FINANCIAL INSTITUTION FRAUD EMERGING TRENDS

Since the spring of 2007, the stability of the United States and the world economic markets have been threatened by fraud associated with mortgages originated by sub-prime lenders, financial statements of the sub-prime lenders, and investments derived from the sub-prime lender market. As a result, publicly traded stocks of sub-prime lenders and investors in mortgage backed securities dramatically decreased in value, resulting in massive balance sheet write-downs, and a number of bankruptcy filings. In the past year, publicly traded financial institutions have written down over $100 billion due to losses associated with the sub-prime mortgage industry. These factors coupled with decreasing home values across the country will continue to create an environment which is conducive to retail and corporate mortgage fraud.

Mortgage fraud is defined as a material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan. The FBI investigates mortgage fraud in two distinct areas: fraud for profit and fraud for property.

Fraud for profit is sometimes referred to as “industry insider fraud” and the motive is to revolve equity, falsely inflate the value of the property, or issue loans based on fictitious properties. Based on existing investigations and mortgage fraud reporting, 80 percent of all reported fraud losses involve collaboration or collusion by industry insiders. The borrower’s debts are not fully disclosed, nor is the borrower’s credit history, which is often altered. Often, the borrower assumes the identity of another person (straw buyer). The borrower states he intends to use the property for occupancy when he/she intends to use the property for rental income, or is purchasing the property for another party (nominee). Appraisals almost always list the property as owner-occupied. Down payments do not exist or are borrowed and disguised with a fraudulent gift letter. The property value is inflated (faulty appraisal) to increase the sales value to make up for no down payment and to generate cash proceeds in fraud for profit.

Fraud for property, also known as fraud for housing, usually involves the borrower as the perpetrator on a single loan. The borrower makes misrepresentations, usually regarding income, personal debt, and property value, or there are down payment problems. The borrower wants the property and intends to repay the loan. Sometimes industry professionals are involved in coaching the borrower so that they qualify.

Although there are many mortgage fraud schemes, the FBI is focusing its efforts on those perpetrated by industry insiders. Some of the current rising mortgage fraud trends include: equity skimming, property flipping, and mortgage related identity theft.

Today’s equity skimming schemes involve the use of corporate shell companies, corporate identify theft, and the use of threat of bankruptcy/foreclosure to dupe homeowners and investors.

Property flipping is best described as purchasing properties and artificially inflating their value through false appraisals. The artificially valued properties are then repurchased several times for a higher price by associates of the “flipper.” After three or four sham sales, the properties are foreclosed on by victim lenders. Often flipped properties are ultimately repurchased for 50 to 100 percent of their original value. With property flipping schemes, law enforcement is again faced with an educated criminal element that is using identity theft, straw borrowers and shell companies, along with industry insiders to conceal their methods and override lender controls.

The FBI, HUD-OIG, USPS, and IRS conduct criminal investigations into mortgage fraud activity with a goal of disrupting and dismantling mortgage fraud rings. We strongly support joint investigations to effectively utilize all of our limited resources while strengthening investigations by tapping into everyone’s expertise. Federal law enforcement is working with state and local law enforcement, regulators, and the financial institution industry to combat this crime problem.

The FBI focuses on fostering relationships and partnerships with the mortgage fraud industry to promote mortgage fraud awareness. To raise awareness of this issue and provide easy accessibility to investigative personnel, the FBI has provided points-of-contact to relevant groups including the Mortgage Bankers Association (MBA), the Mortgage Asset Research Institute, the Mortgage Insurance Companies of America, Fannie Mae, Freddie Mac, and others.

The FBI has also been working to establish broader Suspicious Activity Reporting requirements for mortgage lenders who do not have adequate protection under the current safe harbor provisions. The FBI is collaborating with the mortgage industry and Financial Crimes Enforcement Network (FinCEN) to create a more productive reporting requirement for Mortgage Fraud. The FBI has also been working with the FinCEN to promote an efficient and effective method of identifying and reporting fraudulent mortgage activity affecting non-federally insured mortgage institutions.

The Office of Federal Housing Enterprise Oversight (OFHEO) has passed a regulation requiring Freddie Mac and Fannie Mae to report suspicious mortgage fraud activity on a Mortgage Incident Notice (MFIN). FBI, OFHEO, and FinCEN are working to establish a reporting device similar to the banking industry’s Suspicious Activity Report (SAR).

The top ten hot spots for mortgage fraud activity for 2007 were California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas, and Utah. Other areas significantly affected by mortgage fraud include Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia.

All mortgage fraud programs were recently consolidated within the FBI’s Economic Crimes Unit II, including cases where the targeted lender is not a financial institution. This consolidation provides a more effective and efficient management over mortgage fraud investigations, the ability to identify and respond more rapidly to emerging mortgage fraud problems and a clearer picture of the overall mortgage fraud problem.

FY 2006 and FY 2007 Mortgage Fraud Statistics:

-147,847 mortgage fraud SARs were filed
-44 pending FBI mortgage fraud cases, FY 2006.
-1,204 pending FBI mortgage fraud cases, FY 2007.
-170 FBI indictments/informations, FY 2006
-321 FBI indictment/informations, FY 2007
-139 FBI convictions, FY 2006
-260 FBI convictions, FY 2007
-$4,829,187,680 (FBI) reported loss

CASE SUMMARIES

NELSON MILLER, FREEDOM FINANCIAL

The top 10 executives of Freedom Financial and Absolute Abstract and Title, at one time the largest mortgage broker in the state of Arkansas, were charged criminally for their part in devising, implementing, and carrying out various fraud schemes that involved falsification of hundreds of loan files. The analysis of seized documents revealed employees of Freedom Financial has submitted Uniform Residential Loan Applications and supporting documents to lenders that contained false and fraudulent information. This false information in all its variations was submitted by the employees of Freedom Financial to lenders to induce the lenders to fund loans, or make loans in larger amounts than would normally be given if there had been truthful and complete disclosure. Seven of the nine defendants in this case entered guilty pleas, and two of the defendants were convicted on August 31, 2006 and January 28, 2008, respectively.

CHRISTOPHER CRAIG

In May 2007, Christopher Craig, of Auburn, California, pled guilty to bank fraud charges related to a foreclosure scheme. Craig approached homeowners who were on the verge of foreclosure and promised to loan them money. Instead, he created documents deeding away their properties to straw buyers, then applied for home equity loans from Washington Mutual Bank. Washington Mutual disbursed $1.2 million in loan proceeds to Craig based on the false loan applications. Craig was sentenced in the Eastern District of California to five years in federal prison and ordered to pay $974,452 in restitution. Property and cash was also seized for asset forfeiture from Craig including a 2007 GMC Hummer SUV.

RAYMOND JOSEPH COSTANZO, JR.

From late 2004 to early 2006 RAYMOND JOSEPH COSTANZO, JR. participated in closing millions of dollars in fraudulently inflated mortgage loans for unqualified straw borrowers. These straw borrowers were paid as much as $600,000 from fraudulently obtained loan proceeds through shell companies. COSTANZO himself obtained mortgage loans totaling over $1.5 million by providing the lender with false qualifying information, and falsified down payments. COSTANZO received $250,000 in scheme proceeds from this transaction, and arranged for disbursements of fraudulently obtained loan proceeds to co-conspirators from this and other loans. COSTANZO was sentenced on February 1, 2008, to three years and five months in prison to be followed by four years of supervised release, and ordered to pay $7,843,184 in restitution. COSTANZO pleaded guilty to these charges on October 17, 2006, and has also surrendered his license to practice law.

GHANDI BEN MORKA

Gandhi Ben Morka, a real estate appraiser who was convicted at trial of several offenses related to his involvement in a mortgage fraud scheme, was sentenced in U.S. District Court for the Northern District of Texas to 60 months in prison and ordered to pay more than $2.3 million in restitution. Morka was arrested in May 2007, and indicted along with seven others for various offenses related to a mortgage fraud scheme to defraud Countrywide Home Loans, d/b/a America Wholesale Lender (Countrywide). Morka conspired with co-defendants to defraud Countrywide by locating single family residences in and around the Dallas area and recruiting straw purchasers and borrowers to purchase the targeted residences. Morka would prepare appraisals on the properties, inflating the value to an amount far greater than the fair market value. Then he and co-conspirators prepared and submitted false and fraudulent loan applications in the names of the straw purchasers to secure mortgage loans from Countrywide in amounts substantially greater than the fair market value of the purchased property. Morka and the co-conspirators paid the original owners of the properties and distributed the remaining fraudulent proceeds obtained from the loan proceeds among themselves. The scheme resulted in millions of dollars of losses to Countrywide.

DARRYL L. COOPER

Darrly L. Cooper, of Decatur, Georgia was sentenced on January 11, 2008, to one year and six months in federal prison, followed by three years of supervised release, for a scheme to defraud mortgage lenders by creating fraudulent appraisals that reflected completed construction.

Cooper was recruited by builder/co-conspirator Jeffrey Allen Teague to prepare fraudulent appraisals reflecting photographs and $5 million in appraisal valuations for 15 houses that were represented as completed construction when, in fact, the homes were not fully constructed. A California lender relied on Cooper’s fraudulent appraisals to make $4.7 million in mortgage loans secured by these properties, which in fact had no value at all. This case highlights the problems created by mortgage fraud in which the appraiser conspired with the builder to misrepresent that construction on homes was complete, compounded by out-of-state “investors” who sign for loans without inspecting the properties. The partially built houses in this case may be subject to condemnation, as the portions completed were not built to code, leaving mortgage lenders with little security for their loans and “investors” with nothing to resell, and neighborhoods full of vacant and uninhabitable houses. Cooper pled guilty to a one-count criminal information on November 7, 2007, on a charge of mortgage fraud conspiracy, and has been ordered to pay $4,720,500 in restitution. Teague was sentenced on October 26, 2007, to 15 years and eight months in prison and ordered to pay $7,803,701 in restitution.

KEITH AND LATESHA GARNER

On February 12, 2008, following a two week trial, a jury in federal court returned guilty verdicts against Keith Garner, Latesha Garner, Gregg Savage, and Shalonda Harris, on charges of conspiracy to commit mortgage fraud and wire fraud related to $6 million in fraudulent real estate financing. The fraud took place over a ten week period in the summer of 2006. The subjects used inflated appraisals, stolen identities for straw buyers, and Latesha Garner’s position as a loan processor with Sun Trust Mortgage to perpetrate the fraud. The FBI seized $410,057 from the bank accounts of the subjects through asset forfeiture.

AMERIFUNDING

Amerfunding was a Mortgage Brokerage owned and operated by Gerald Small in Colorado, which maintained two “warehouse” lines of credits, each at a large federally-insured financial institution in the U.S. In order to support a lavish lifestyle, Small created fictitious loans to live off of the lines of credit. The borrower information, name, and social security number were invented. Eventually, one of the creditors asked for verification of identification thereby defeating the “invention” process. To deal with this, Small placed an advertisement for a $100,000 + Account Representative position at his company. Applicants eagerly completed applications inclusive of names, social security numbers and copies of driver’s licenses which Small wasted no time in utilizing for more fictitious loans. Investigation determined that Small had kited over $200 million in fraudulent loans and used the stolen identities of 47 job applicants to obtain mortgage funding for fictitious home loans or “air loans” totaling over $21.5 million during a 24-month period.

MIDTOWNE RESTORATION LLC

Brent Michael Barber led the mortgage fraud ring holding himself and company Midtowne Restoration LLC as a real estate investment company. “Straw buyers” were solicited in schemes where they were paid $2,000 for use of their identity and credit profiles to obtain mortgage financing for properties predominantly in low income areas of Kansas City, Missouri. In other schemes, investors were recruited for properties which were represented to be refurbished and appraised at amounts far in excess of their true value. The investors were assured by Barber that renters would be found to service the mortgage and maintenance costs of the properties so there would be no risk. Eight other individuals were also involved in the scheme which involved 300 fraudulent mortgage loans worth approximately $19.6 million and caused losses to federally-insured financial institutions of approximately $11.8 million. On February 23, 2006, Barber pled guilty to 104 counts contained in two federal indictments. On October 27, 2006, Barber was sentenced to 12 years and seven months federal incarceration, and ordered to pay restitution in the amount of $11,206,419.

FOOTNOTES:
1
A major case is defined as an investigation pertaining to a failed financial institution, or where the loss or loss exposure to the financial institution exceeds $100,000.
2
These statistics are derived from the Suspicious Activity Report database, which is owned by the five Federal banking regulatory agencies, and is maintained by the U.S. Treasury Department’s Financial Crimes Enforcement Network.

09.06.10