Two Real Estate Professionals Convicted in Massive Mortgage Fraud Scheme That Led to $40 Million in Losses

A federal jury this afternoon convicted a prominent Beverly Hills real estate agent and a licensed real estate appraiser on federal charges for their roles in a massive mortgage fraud scheme that caused more than $40 million in losses to federally insured banks.

After a five-week trial, the jury convicted Kyle Grasso, 38, formerly of Santa Monica, and Lila Rizk, 42, of Trabuco Canyon, of conspiracy, bank fraud and numerous loan fraud charges for their roles in the mortgage fraud scheme. Additionally, Grasso was convicted of three counts of money laundering.

The evidence presented at trial showed that Grasso and Rizk were part of a scheme that obtained inflated mortgage loans on homes in some of California's most expensive neighborhoods.

Eight other real estate professionals who were part of the scheme previously pleaded guilty to federal felony charges for their roles. The defendants who previously pleaded guilty are:

• scheme leader Charles Elliott Fitzgerald, 48, formerly of Newbury Park and Beverly Hills;
• Mark Alan Abrams, 47, of Los Angeles, who along with Fitzgerald orchestrated the scheme;
• Nicole LaViolette, 38, of Palm Springs;
• Jamieson Matykowski, 35, of Laguna Niguel;
• Timothy Holland, 37, of Santa Ana;
• Richard Maize, 54, of Beverly Hills;
• Thomas R. Schiff, 47, of Brentwood; and
• L. Scott Robinson, 46, of Dana Point.

Fitzgerald was previously sentenced to 14 years in federal prison for his participation in the scheme. The remaining defendants are awaiting sentencing.

The wide-ranging and sophisticated scheme defrauded mortgage lenders by obtaining inflated mortgage loans on expensive homes in some of California's most exclusive neighborhoods, including Beverly Hills, Bel Air, Holmby Hills, Malibu, Carmel, Mill Valley, Pebble Beach and La Jolla. Members of the conspiracy sent false documentation, including bogus purchase contracts and appraisals, to the victim banks to deceive them into unwittingly funding mortgage loans that were hundreds of thousands of dollars higher than the homes actually cost. Lehman Brothers Bank alone was deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses.

Lehman Brothers Bank and RBC Mortgage Company sued Fitzgerald, Abrams and others in federal court in Los Angeles in 2003 and obtained a receivership, temporary restraining orders and preliminary injunctions against them. Judge Pregerson appointed David J. Pasternak as receiver to recover assets acquired with proceeds of the fraud. The receiver, as well as attorneys and forensic accountants employed by him, have cooperated extensively with the government's ongoing criminal investigation.

The evidence presented at trial included proof that Grasso profited by collecting hundreds of thousands of dollars in commissions and concealed payments. The prosecution further presented evidence that Rizk profited by collecting hundreds of thousands of dollars in fees for providing inflated appraisals in the scheme.

Judge Pregerson is scheduled to sentence Grasso and Rizk on January 29, 2010.

A third defendant who went to trial, Joseph Babajian, 56, another Westside real estate agent, was acquitted on 13 criminal counts, and the jury was unable to reach a verdict on eight additional counts. United States District Judge Dean D. Pregerson declared a mistrial as to the eight counts.

This case is the result of an investigation by the Federal Bureau of Investigation and IRS-Criminal Investigation.