If the market had not collapsed they would have been called brilliant. When things go south it is called "Fraud"
I wonder if the "Man" was trying to flip their deals?
U.S. Department of Justice
United States Attorney
Western District of Tennessee
800 Federal Office Building
Ph: (901) 544-4231
Memphis, Tennessee 38103
Fax: (901) 544-4230
TTY: (901) 544-3054
FOR IMMEDIATE RELEASE
FOR FURTHER INFORMATION
(November 13, 2001)
CONTACT: Leigh Ann Jordan
FORMER AMERICAN NATIONAL MORTGAGE EMPLOYEE PLEADS GUILTY
Terrell L. Harris, United States Attorney for the Western District of Tennessee,
announced today that Norman Louis Ricci, Jr., entered a guilty plea to a criminal
information filed in United States District Court in Memphis, Tennessee. The one-count
information filed by the United States Attorneys Office charged that beginning on or
about May 10, 1998, and continuing sometime in April 2000, Ricci formerly employed at
American National Mortgage, Inc. (ANM) conspired with others to violate federal mail,
wire and bank fraud statutes. According to the information, Ricci was employed at
ANM from approximately December 1993 until approximately February 2000, and in
early 1999, he became president and part owner of Sugar Beach, LLC. The information
alleges that conspirators sought to enrich themselves and minimize losses to ANM.
According to the information the conspirators accomplished the objects of the
conspiracy by selling mortgage loans to investors knowing that the values of
properties securing the loans were falsely inflated and that the loan files contained
false and fraudulent loan underwriting documents and HUD-1s. In furtherance of the
conspiracy, the information alleges that ?between May 10, 1998, and July 1998, Ricci
discussed with other conspirators the need to sell certain loans funded through ANM?s
warehouse line of credit and the fact that some investors were raising questions about
the validity of appraisals of the properties securing the loans.? The information further
alleges that in ?July 1998, Ricci encouraged another conspirator to engage in property
?flips? for the purpose of creating false comparable sales prices to justify false and
fraudulent appraisals of properties securing the loans ANM needed to sell.? The
information also alleges that in February and March 2000, Ricci and other conspirators
caused the making of mortgage loans to finance the purchase of two properties in
Germantown, Tennessee, knowing that false and fraudulent loan underwriting
documents and HUD-1s were being used in support of the loans.
Among the obligations imposed upon Ricci under the terms of a written plea
agreement filed by the United States, Ricci will continue to provide ?complete and
truthful information? and ?to testify completely and truthfully? at future
proceedings. If Ricci fulfills all of his obligations under the terms of the
agreement, the United States will recommend a sentence of imprisonment not to
exceed 12 months. The United States also agreed not to bring other charges
against Ricci arising from his participation in the conspiracy described in the
information. The maximum penalty Ricci could face for a violation of the Federal
conspiracy statute (Title 18, United States Code, Section 371) is five years
imprisonment and a $250,000 fine.
The matter is being prosecuted by Assistant U.S. Attorney Carroll Andre? and
William Clabault of the Criminal Division of the United States Department of
Justice. The matter is being investigated by the Memphis Division of the Federal
Bureau of Investigation, the Memphis Field Office of the United States Postal
Inspection Service, and the United States Department of Housing and Urban
Development Office of Inspector General.
# # # #
During the frenzy just about "everyone" was planning to flip their deals. It was a market driven by investulators selling to each other...until the music stopped. But woe be the developers who've picked the pockets of the lawyers and the cops.
Would love to hear your thoughts on this if I am missing something
Your challenge to lend to A paper participants hard equity terms is gratuitous. Your characterization of hard equity rates/fees as excessive ignores the astronomical default rates. The lender was the only type of choice for these non-arms length borrowers. Who cares about state taxes/title charges/prepays at those margins when transfered? How would you like to be lifting 40 mil tonight, and the next few hundred nights because you've got 50 mil collateral you can't move? All in? Or should the klieg lights be focused elsewhere?Another good Shelly post. Here is my thought for the day: "fraud" is tossed around very easily when markets downturn- see the lawsuits by investors against stockbrokers. Fraud requires proving 5 key elements, three of which are you have to have a claimant who 1. "reasonably relied " 2. "on a misrepresentation" 3. "to their detriment". "Bank fraud" requires a "bank" to be the victim. A "bank" is generally an institution whose deposits are insured by the US Government. While "fraud" is a bad bad bad thing, no bank = no bank fraud. I am not defending any developer- but anyone who thinks they are going to be anything other than aggressive and all about the money is naive.
Let's see what we can tell from this thread about Aquatera:
1. no bank involved. Word is that is what stalled the Feds on this deal- no jurisdiction
2. victim? The lender is a well known "hard money lender" who made a high interest rate loan with 12% in up front points ($4 million loan fee). (He makes loans on casinos, the Queen Mary, etc.) Remember when you refinanced your house? Paid a "point" (1% of the loan amount) to buy down the rate? Try paying 12 points to buy down the rate to 12%. That is a really strong deal for the lender.
2. Is there a misrepresentation? The lender got their own appraiser from the best appraiser in Sowal- he said the land was worth $79 million dollars! So the "loan to value" was 50%. Apparently recent appraisals put the value at over $50 mil today- still way in excess of the lender's loan of less than $40 mil. Try buying your house with a 50% loan
This is the key: Any of you- I will finance your property right now, loaning you 50% of the appraised value of your property (I pick my own appraiser, and you pay his fee), I will charging you 12% loan fee up front (that is 12% of the loan amount), then 12% interest per annum, and you pay all the closing costs and my attorney's fees. I don't really care what you paid for it. Close in 7 days.
3. flip? looks like that is pretty apparent from the deed records, secretary of state records, title insurance, etc. there was a same day purchase and resale with related parties. If it was "mispreresented" it would have been hidden, and they would not have wanted to pay that ridiculously high deed stamps and fees and title premiums on the deal. They probably paid $200,000 extra to buy and resell it. You can't "reasonably rely" by doing the three monkeys act and not look at or read anything. On a land loan all the lender can loan on is the appraisal- the property has no operating income, no pro formas for cash flow, no NOI. So the appraisal is everything. Does it matter what the borrower paid for the land? The lender's deal is the same even if someone gifted the borrower the land- the lender just wants the points and the collateral
4. Detriment? looks like the property has a bunch of equity and the lender has no loss.
I read linney's lawsuit in Atlanta, the $13 mil case". Looks like a classic nuisance action. Simple summary seems to be: Linney and some other dude bought a property from Zohouri to redevelop. Linney defaults a third party loan, Zohouri buys loan and forecloses him out. Zohouri gets development loan. Linney's partner in deal dies. Linney sues Zohouri claiming if property is redeveloped (it is not), Linney should get half of equity plus punitives for "fraud". Just goes to show "anybody can sue anybody"
Would love to hear your thoughts on this if I am missing something
Your challenge to lend to A paper participants hard equity terms is gratuitous. Your characterization of hard equity rates/fees as excessive ignores the astronomical default rates. The lender was the only type of choice for these non-arms length borrowers. Who cares about state taxes/title charges/prepays at those margins when transfered? How would you like to be lifting 40 mil tonight, and the next few hundred nights because you've got 50 mil collateral you can't move? All in? Or should the klieg lights be focused elsewhere?
You make a lot of good points, and if that is as far as the story goes, and what you state are indeed facts, then there's no fraud.
But...being the skeptic that I am, there could possibly be more to this story that will come to light as the real estate frenzy continues to unwind. For instance, could it be possible that in other development dealings the stated value of this property was used to secure loans from elsewhere?
In researching the rise and fall of the RE frenzy, the tactic of engineering a quick bump up in the value of property assets (in order to secure loans for personal or business use from other sources) appears to have been a common occurrence. I'm not saying this was the case with Aquatera (nor do I have any proof that it was)...but let's just say if they discover it is, I wouldn't be in the least surprised.
So if another entity loaned money to a developer based on the fact that he held an asset he claimed was worth, say, $79 million, and later found that the value was arrived at by the use of smoke and mirrors, the claimant could say he 1. "reasonably relied " 2. "on a misrepresentation" 3. "to their detriment"....no?