Leader of $92 Million Mortgage Fraud Conspiracy Pleads Guilty
October 15, 2010
Thomas Kontogiannis, a New York real estate developer who led a mortgage fraud conspiracy resulting in more than $90 million losses, pleaded guilty to conspiracy to commit bank and wire fraud in federal court in Brooklyn today. Kontogiannis admitted defrauding Washington Mutual Bank ("WAMU") and DLJ Mortgage Capital, Inc. ("DLJ"), a subsidiary of Credit Suisse, in connection with his development of two tracts of land in Brooklyn and Queens. The proceedings were held before United States District Judge Kiyo A. Matsumoto.The guilty plea was announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, Janice K. Fedarcyk, 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 indictment alleges that from 2001 to 2003, Kontogiannis purchased and subdivided Loring Estates, located in East New York, Brooklyn, and Edgewater Development, located in College Point, Queens. After the conspirators obtained permits to construct multi-unit housing, Kontogiannis staged sales of the properties financed by mortgage loans. He then directed others to prepare false loan files to create the appearance that the properties were being purchased by creditworthy homeowners, when, in fact, Kontogiannis sold the properties to family members and employees who acted as straw buyers. The mortgages were supported by fraudulent appraisals depicting finished homes when the buildings had yet to be built or had fictional addresses, and the mortgage files contained 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. and Coastal Capital Corp. After the loans were closed, Kontogiannis ensured that the mortgages and deeds were not recorded, thereby permitting him to "sell" the same property repeatedly. Kontogiannis eventually sold the loans to WAMU or DLJ.
In an effort to conceal the multiple sales of the same properties, Kontogiannis changed the addresses of properties located in East New York, Brooklyn, to addresses in neighboring Howard Beach, Queens. In addition, he directed others to make monthly payments on the mortgages, ensuring that none of the mortgages became delinquent. The payments ceased in 2007, with approximately $92 million in principal outstanding on the fraudulent mortgages.
Kontogiannis, along with eight other defendants, were indicted on conspiracy and bank and wire fraud charges in June 2009. Four other defendants have pleaded guilty to date.
"The scope of this fraud is staggering," stated United States Attorney Lynch. "The defendant controlled every aspect of the mortgage lending process, right up to the sale of fraudulent loans into the secondary market." Ms. Lynch expressed her grateful appreciation to the New York State Banking Department for its assistance.
FBI Assistant Director-in-Charge Fedarcyk stated, "Kontogiannis has added another conviction to his rap sheet by defrauding banks and others in his $92 million mortgage fraud scheme. He thought he had the system figured out and now faces adding even more time to his sentence. This guilty plea is a step towards cleaning up the housing market, and the FBI will continue to vigorously investigate those that perpetrate this type of crime which affects all Americans."
New York Superintendent of Banks Neiman stated, "This plea of guilty to one of the largest mortgage frauds directed by a single individual was made possible by seamless coordination between federal agencies and the state banking department. This degree of cooperative federalism, with each agency contributing specialized expertise, will restore confidence in the mortgage sector and the greater financial system."
FDIC Inspector General Rymer stated, "The Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG) is pleased to join the United States Attorney's Office for the Eastern District of New York and our law enforcement colleagues in announcing this guilty plea. The American people need to be assured that their government is working to ensure integrity in the financial services and housing industries and that individuals and entities involved in mortgage fraud criminal misconduct will be prosecuted. Bringing these individuals to justice helps maintain the safety and soundness of the nation's financial institutions."
Kontogiannis faces up to 30 years’ imprisonment on the conspiracy count to which he pleaded guilty. Kontogiannis also consented to forfeiture of the proceeds of his fraudulent activity, including a criminal forfeiture money judgment and money traceable to four commercial properties he controlled worth at least $50 million.
The government's case is being prosecuted by Assistant United States Attorneys Jonathan E. Green and Duncan Levin.
This law enforcement action is part of President Barack Obama's Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. More information about the Financial Fraud Enforcement Task Force can be found at www.stopfraud.gov.
The Defendant:THOMAS KONTOGIANNIS