Nine Indicted in $92 Million Mortgage Fraud Scheme
June 4, 2009
A federal grand jury in Brooklyn returned an indictment charging nine defendants with a mortgage fraud scheme that resulted in losses exceeding $90 million. The indictment alleges the defendants conspired to defraud Washington Mutual Bank (“WAMU”) and DLJ Mortgage Capital, Inc. (“DLJ”), a subsidiary of Credit Suisse, in connection with the development of two tracts of land located in Brooklyn and Queens by staging the sales of the same properties to straw buyers in order to obtain multiple mortgages on those properties. Thomas Kontogiannis, John Michael, Elias Apergis, Steven Martini, Nadia Konstantinadou, Stefan Deligiannis, Ted Doumazios, Edward Hogan, and Jonathan Rubin are charged with conspiracy to commit bank and wire fraud. In addition, Kontogiannis, Apergis, Konstantinadou, Deligiannis, Martini, and Doumazios are charged with bank fraud, and Kontogiannis and Konstantinadou are charged with money laundering and money laundering conspiracy.1
The indictment was announced by Benton J. Campbell, United States Attorney for the Eastern District of New York, Joseph M. Demarest, Jr., Assistant Director-in-Charge of the Federal Bureau of Investigation, New York Field Office, Richard H. Neiman, New York Superintendent of Banks, and Jon T. Rymer, Inspector General, Federal Deposit Insurance Corporation. The defendants’ initial appearances and arraignments are scheduled later today before United States Magistrate Judge Roanne L. Mann, at the U. S. Courthouse, 225 Cadman Plaza East, Brooklyn, New York. The case has been assigned to United States District Judge Kiyo A. Matsumoto.
As detailed in the indictment, from 2001 to 2003, Kontogiannis, a real estate developer, purchased and subdivided Loring Estates, located in East New York, Brooklyn, and Edgewater Development, located in College Point, Queens. Hogan and Rubin served as the architect and engineer, respectively, and were employed by Kontogiannis. Together, the three defendants obtained permits to construct multi-unit housing at Loring Estates and Edgewater Development.
To finance the projects, the defendants allegedly subdivided the tracts and staged sales of the properties financed by mortgage loans. The defendants prepared false loan files to create the appearance that the properties were being purchased by creditworthy homeowners, when, in fact, Kontogiannis recruited straw buyers from among family members and employees of companies he controlled, including the defendants Deligiannis, Hogan, Rubin, and Apergis. The indictment charges that Martini furnished fraudulent appraisals to support the price of the properties, even where the buildings had yet to be built or had fictional addresses; and Doumazios provided fraudulent title abstract reports and other documentation designed to indicate that the seller, a Kontogiannis-controlled entity, had clear title to convey and that the lender’s interest was protected by title insurance. The loans were financed by lenders controlled by Kontogiannis, including Interamerican Mortgage Corp., later known as CIP Mortgage Corp., (collectively, “Interamerican/CIP”) and Coastal Capital Corp. (“Coastal”), which was run by Kontogiannis’ nephew, John Michael. Stefan Deligiannis allegedly processed the fraudulent loans, which were subsequently sold to WAMU and DLJ.
As part of the fraud scheme, in an attempt to conceal the multiple sales of the same properties, Kontogiannis allegedly changed the addresses of properties located in East New York, Brooklyn, to addresses in neighboring Howard Beach, Queens. In addition, the indictment charges that Kontogiannis and Konstantinadou caused entities controlled by Kontogiannis to make monthly payments on the mortgages, ensuring that none of the mortgages became delinquent. However, the payments ceased in 2007, with approximately $92 million in principal outstanding on the fraudulent mortgages.
“Last year, we announced the formation of a task force comprised of federal, state, and local law-enforcement agents and investigators to address the burgeoning problem of mortgage fraud,” stated United States Attorney Campbell. “This case is another example of the results of our ongoing efforts, which include investigations and prosecutions of mortgage fraud schemes that harmed investors, lenders, and homeowners throughout the country.” Mr. Campbell expressed his grateful appreciation to the New York State Banking Department for its assistance.
FBI Assistant Director-in-Charge Demarest stated, “The indictment sets forth a soup-to-nuts mortgage fraud scheme that included false loan files containing phony information, fraudulent appraisals, fictional addresses, fake title reports, and phantom title insurance. This resulted in the defrauding of two financial institutions out of more than $90 million. The mortgage fraud task force was constituted to root out such operations, and it has been doing just that.”
New York Superintendent of Banks Neiman stated, “Our Criminal Investigations Bureau’s Mortgage Fraud Unit has done an outstanding job in identifying this fraud and developing the initial investigation. The results of our collaborative efforts should serve as a strong warning to individuals that participate in these large organized mortgage fraud rings that you will be caught and brought to justice.”
FDIC Inspector General Rymer stated, “The FDIC OIG is committed to its partnerships with others in the law enforcement community as we address mortgage fraud cases throughout the country. Now, more than ever, the American people need to be assured that their government is working to ensure integrity in the financial services and housing industries and that those involved in criminal activities that undermine that integrity will be held accountable.”
The maximum term of imprisonment for any defendant convicted of conspiracy to commit bank fraud is 30 years. The indictment also seeks forfeiture of the proceeds of the defendants’ bank and wire fraud activity and of property involved in money laundering, including a criminal forfeiture money judgment and money traceable to four commercial properties controlled by Kontogiannis worth at least $50 million.
The government’s case is being prosecuted by Assistant United States Attorneys Jonathan E. Green and Duncan Levin.
1 The charges announced today are merely allegations, and the defendants are presumed innocent unless and until proven guilty.