The Case of the "Straw Borrowers" and Millions Missing in Mortgage Fraud

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Yesterday in Dallas federal court, the U.S. Attorney's Office unsealed a 71-page, 51-count indictment against 11 people the government claims defrauded banks and mortgage lenders out of millions of dollars. Among those indicted: 55-year-old Eric Rulack Farrington Jr., who, if found guilty, could wind up spending a maximum of 600 years in prison for getting "straw borrowers" to buy houses they couldn't afford at jacked-up prices they wouldn't pay in order to get enormous loans from banks and lenders they had no intention of paying back.

It's a complicated scheme, but it involved lots of folks, at least 11 properties scattered all over the area (from near the Preston Royal Shopping Center all the way to Allen and Irving) and at least $4.5 million in money the feds claim Farrington and his associates essentially stole from lenders. Here's the entire indictment; the media release, which summarizes the case, is after the jump. Eight of the 11 were arrested early this morning and will appear in court at 2 p.m. today; three more are expected to turn themselves in sooner than later. --Robert Wilonsky

Update: Unfair Park's confirmed that Eric Farrington is indeed the ex-husband of Sheila Farrington -- whose name may sound just a little familiar. As in: Mrs. Don Hill.

FBI AGENTS ARREST EIGHT DEFENDANTS CHARGED IN ELABORATE MORTGAGE FRAUD SCHEME

51-Count Indictment Charges Eric Rulack Farrington, Jr., with Conspiracy, Bank Fraud, Wire Fraud, Money Laundering and Related Charges DALLAS - Early this morning, Special Agents with the FBI arrested eight defendants throughout the Dallas-Fort Worth, Texas, metroplex on charges outlined in a 51-count indictment returned by a federal grand jury in Dallas on May 21, 2008, and unsealed yesterday, announced Robert E. Casey, Jr., Special Agent in Charge of the Dallas FBI, Michael Lahey, Special Agent in Charge, IRS-Criminal Investigation (CI), Dallas, and Richard B. Roper, U.S. Attorney for the Northern District of Texas. These defendants, along with three additional defendants named in the indictment who were not arrested this morning, face various charges related to a mortgage fraud scheme they allegedly operated in the Dallas area from March 2002 to January 2006.

Those arrested this morning, and their roles/relationships are:

Eric Rulack Farrington, Jr., 55, of Irving, Texas

President of Prestige Capital

Corporation, which did business as Farrington Mortgage Group, Farco Construction, Inc., and EFC Investments, LLC, which also did business as EFC Management Company. Farrington was also the principal of Eric Farrington Seminars, Inc.

Regis Lamont Williams, 43, of Dallas

A Texas certified real estate appraiser who did business as Executive Certified Appraisal

Kevin Ray Sanderson, 33, of Irving, Texas
Vice President of Farco Construction Inc., Dallas, who worked under the direction of Farrington

Tony Earl Anderson, 51, of Dallas
business associate of Farrington

James Edward Jones, 42, of Dallas
business associate of Farrington

Edwin Terrence Bell, 41, of Fort Worth, Texas
principal of The Togetherness Group, Inc., a/k/a "TTG, Inc."

Robert John Mason, 53, of Oak Leaf, Texas
employee of Prestige Capital Corporation who worked under the direction of Farrington

Christopher N. Williams, 41, of Flower Mound, Texas
business associate of Farrington

The three defendants who were not arrested this morning are:

Marcus Allen Parker, 33, of Rowlett, Texas
business associate of Farrington

Micheal (sic) Lewis Andrews, 48, of Plano, Texas
did business as Second Chance Mortgage

Janice Little Shepherd, 50, of Irving, Texas
a mortgage broker who did business as EFC Capital Mortgage, Dallas

All defendants who were arrested this morning will have their initial appearance this afternoon before U.S. Magistrate Judge Irma C. Ramirez at 2:00 p.m. The government does not anticipate moving to detain any of the named defendants and expects that all will be released on Conditions pending trial. It is anticipated that the remaining three defendants will surrender to federal officials within the week.

All 11 defendants are charged with conspiracy to commit wire fraud and all are charged with criminal forfeitures. All are charged in various substantive counts, including wire fraud, bank fraud, money laundering and engaging in a monetary transaction with criminally derived property. The maximum penalties for conspiracy to commit wire fraud and the wire fraud and aiding and abetting counts are 20 years in prison and a $250,000 fine per count. The maximum penalty for bank fraud and aiding and betting is 30 years in prison and a $1 million fine per count. The maximum penalty for money laundering and aiding and abetting is 20 years in prison and a $500,000 fine per count. The maximum penalty for engaging in a monetary transaction with criminally derived property and aiding and abetting is 10 years in prison and a $250,000 fine per count.

Eric Rulack Farrington, Jr. is charged with one count of conspiracy to commit wire fraud, one count of bank fraud and aiding and abetting, 15 counts of wire fraud and aiding and abetting, 10 counts of money laundering and aiding and abetting, and five counts of engaging in a monetary transaction with criminally derived property and aiding and abetting. If convicted, he faces a maximum statutory sentence of 600 years in prison, a $13.75 million fine and restitution.*

Janice Little Shepherd, is charged with one count of conspiracy to commit wire fraud, 13 counts of wire fraud and aiding and abetting, and five counts of engaging in a monetary transaction with criminally derived property and aiding and abetting. If convicted, she faces a maximum statutory sentence of 330 years in prison, a $4.75 million fine and restitution.*

Rejis Lamont Williams is charged with one count of conspiracy to commit wire fraud, one count of bank fraud and aiding and abetting, nine counts of wire fraud and aiding and abetting, and five counts of engaging in a monetary transaction with criminally derived property and aiding and abetting. If convicted, he faces a maximum statutory sentence of 280 years in prison, a $4.725 million fine and restitution.*

Kevin Ray Sanderson is charged with one count of conspiracy to commit wire fraud, one count of bank fraud, seven counts of wire fraud and aiding and abetting, and one count of money laundering. If convicted, he faces a maximum statutory sentence of 210 years in prison,
a $3.5 million fine and restitution.*

Tony Earl Anderson is charged with one count of conspiracy to commit wire fraud, seven counts of wire fraud and aiding and abetting, and five counts of engaging in a monetary transaction with criminally derived property and aiding and abetting. If convicted, he faces a maximum statutory sentence of 210 years in prison, a $3.25 million fine and restitution.*

James Edward Jones is charged with one count of conspiracy to commit wire fraud and ten counts of wire fraud and aiding and abetting. If convicted, he faces a maximum statutory sentence of 220 years in prison, a $2.75 million fine and restitution.*

Edwin Terrence Bell is charged with one count of conspiracy to commit wire fraud, five counts of wire fraud and aiding and abetting, and two counts of engaging in a monetary transaction with criminally derived property and aiding and abetting. If convicted, he faces a
maximum statutory sentence of 140 years in prison, a $2 million fine and
restitution.*

Marcus Allen Parker is charged with one count of conspiracy to commit wire fraud, one count of bank fraud and aiding and abetting, and three counts of wire fraud and aiding and abetting. If convicted, he faces a maximum statutory sentence of 110 years in prison, a $2 million fine and restitution.*

Micheal Lewis Andrews, Robert John Mason, and Christopher N. Williams are each charged with one count of conspiracy to commit wire fraud and two counts of wire fraud and aiding and abetting. If convicted, each would face a maximum statutory sentence of 60 years in
prison, a $750,000 fine and restitution.*

According to the indictment, the defendants ran a scheme in which they located single-family residences for sale in the Dallas area, including distressed and pre-foreclosure properties, and negotiated a sales price with the seller. They created surplus loan proceeds by inflating the sales price to an arbitrary amount substantially more than the fair market value of the residence. In some cases, they would create a bogus outstanding mortgage lien to be discharged. They
recruited individuals to act as nominee or "straw purchasers" or "straw borrowers" and falsely represented to them that the property would be managed by the defendants and rented by a suitable tenant; that the mortgage, interest, taxes, insurance and property maintenance would be paid from the rental income; and the "straw purchasers/borrowers" would have no expenses. The "straw purchasers/borrowers" had no intention to live in the property and did not have sufficient income to repay the loans.

The indictment also alleges that the defendants prepared and submitted fraudulent loan documents in the names of the "straw purchasers/borrowers" and obtained loans in inflated amounts based on these fraudulent loan documents. Then they used the fraudulently obtained surplus loan proceeds to pay the sellers kickbacks, to conceal the fraud, and distributed the bulk of the proceeds among themselves.

They would then allow the loan to go into foreclosure after a few payments were made on the loan.

Residences listed in the indictment that were used in the scheme are:

1420 Travis Circle South, Irving, Texas
6231 Azalea Lane, Dallas
7730 Cliffbrook Drive, Dallas
10907 Cinderella Lane, Dallas
7617 Arborgate Drive, Dallas
13735 Ashridge Drive, Dallas
6824 Winterwood Lane, Dallas
6840 Winterwood Lane, Dallas
6915 Winterwood Lane, Dallas
7012 Creek Bend Road, Dallas
1509 Appalachian Drive, Allen, Texas

While the indictment doesn't indicate the total amount of the fraud, Count 51 of the indictment, the criminal forfeiture allegation, requires the defendants to forfeit $4,500,070 to the U.S. should they be convicted on Count One, the conspiracy count. The forfeiture allegation also requires the defendants, upon conviction of any of Counts Two through 17, to forfeit various sums of money, that total $3,909,539, as listed in Count 51 of the indictment.

An indictment is an accusation by a federal grand jury and a defendant is entitled to the resumption of innocence unless proven guilty.

U.S. Attorney Roper praised the investigative efforts of the FBI and Internal Revenue Service - Criminal Investigation. Assistant U.S. Attorney Joseph Revesz is prosecuting the case.

*A convicted defendant would be subject to the court's consideration of advisory federal sentencing guidelines which suggest sentences based on the amount of loss and other offense factors, set forth in a post-conviction pre-sentence report and expected to be substantially lower than the maximums set forth above.

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