Former Mortgage Broker Sentenced to Serve at Least Two Years in State Prison for Role in Elaborate Mortgage Fraud Scheme
"This case paints a clear picture of the abuse and fraud that was perpetrated in the banking industry by individuals who sought to take advantage of the housing market to make some fast cash," AG Coakley said. "We are pleased that the court recognized the serious nature of these crimes, and our office will continue to prosecute those who try to game the system."
Erik Tancun, age 31, of Marshfield, pled guilty on September 14, 2010, to charges of Making or Publishing False or Exaggerated Statements (37 counts), Aiding & Abetting the Misconduct of a Bank Employee (2 counts), Conspiracy (2 counts) and Commercial Bribery. Yesterday, Worcester Superior Court Judge Peter Agnes sentenced Tancun to serve two to two and a half years in State Prison.
Three other defendants have been charged in connection with this case. On August 25, 2010, former banking officer Thomas Itemere, age 30, of Worcester, pled guilty in Worcester Superior Court to the charge of Making or Publishing False or Exaggerated Statements (13 counts) and was sentenced to serve four years of probation.
On March 3, 2010, former banking officer Steven Stapleton, age 38, of Waltham, pled guilty to the charges of Making or Publishing False or Exaggerated Statements (24 counts), Misconduct of a Bank Employee (2 counts), Commercial Bribery, and Conspiracy (2 counts). Stapleton will be sentenced in Middlesex Superior Court at a later date.
Another co-defendant, business consultant Kenneth Garabedian, age 53, of Worcester, is charged with, Making or Publishing False or Exaggerated Statements (10 counts), Aiding & Abetting the Misconduct of a Bank Employee (2 counts), Commercial Bribery, and Conspiracy (2 counts ). His case is scheduled for trial in Middlesex Superior Court on March 14, 2011.
Authorities discovered that the defendants conspired to produce false bank documents that were pivotal in fraudulently obtaining millions of dollars worth of loans. These bank documents were known as verifications of deposit, or VODs. A VOD is a document completed by a banking institution and relied upon by mortgage lenders to determine the credit-worthiness of a borrower. The document usually contains information regarding the current balance of the borrower's account and the average balance of that account over the previous two months. Lenders review VODs to determine that a borrower has enough money available to make mortgage payments and, in the case of a purchase, that a borrower has sufficient funds available to cover a down payment at the closing.
In a legitimate transaction, a borrower provides checking and savings account information to their mortgage broker, along with an estimate of what funds are available in that account. The broker prepares a "verification of deposit" form, which the broker would then send to the banking institution indicated by the borrower. The banking institution examines the borrower's accounts and completes the VOD by filling in the actual figures and signing the VOD. The bank then returns the VOD to the mortgage broker, who forwards it to a lender along with other loan application materials of the borrower. The lender may follow up with a phone call to the bank, independently verifying the amounts stated in the VOD.
The Attorney General's Office commenced an 11-month investigation in August 2007 after the office received information from the Commonwealth's Division of Banks regarding a bank employee at Cambridge Savings Bank. During the course of the investigation, authorities discovered that Garabedian allegedly acted as a conduit for introducing two bank employees, Stephen Stapleton, who worked at Citizens Bank and Cambridge Savings Bank, and Thomas Itemere, who worked at a Bank of America branch in Worcester, to Erik Tancun, a mortgage broker with Direct Finance, based in Hanover. Authorities allege that Garabedian coordinated the production of some of the VODs, and paid one of the bank employees for completing the fake VODs. Tancun would forward a request for a VOD to the bank "insiders," Stapleton and Itemere, and specify how much money the VOD needed to show as being in the bank account in order to make the loan close. With that information in hand, the banking officers would list bank accounts and balances that did not exist at all, or in some instances were greatly exaggerated. Investigators discovered that either Stapleton or Itemere would handwrite the amount requested, sign the VOD, and return the VOD to Tancun. Itemere and Stapleton would include their direct telephone number at the bank so that the amounts on the VOD could be "independently" verified by the lender.
Authorities determined that the false VODs were used to bolster the loan applications of "straw buyers" in a widespread foreclosure rescue scheme based in Worcester County and operated by Allen Seymour.
A Middlesex Grand Jury returned indictments against Tancun, Garabedian, and Stapleton on June 26, 2008. A Worcester County Grand Jury also returned indictments against Tancun and Itemere the same day. Garabedian, Tancun, Stapleton and Itemere were arrested the next day without incident. All four individuals were arraigned on June 27, 2008. On September 14, 2010, Tancun pled guilty to all charges. Yesterday, he was sentenced to serve time in State Prison.
The case is being prosecuted by Assistant Attorney General James O'Brien, Chief of Attorney General Martha Coakley's Corruption and Fraud Division, and Assistant Attorney General Andrew Doherty, also of Attorney General Coakley's Corruption and Fraud Division. Former financial Investigator James McFadden and Massachusetts State Troopers assigned to the Attorney General's Office conducted the investigation, which was assisted by employees of Cambridge Savings Bank and fraud specialists at Citizens Bank and Bank of America.