Leader of Massive Mortgage Fraud Scheme in Boston Convicted by Jury
Conviction concludes prosecution of one of largest mortgage fraud schemes in Massachusetts
BOSTON – A New Hampshire man has been convicted of leading a scheme that defrauded more than a dozen financial lending institutions and several homebuyers of more than $2 million in connection with $12.5 million in mortgages loaned for the purchase of 26 multi-family properties in the Boston area, Attorney General Martha Coakley announced today.
Following a three week trial involving the testimony of more than 40 witnesses, a Suffolk Superior Court jury convicted Joshua Brown, age 31, on charges of Larceny over $250 (26 counts), Making or Publishing False or Exaggerated Statements (19 counts), and Larceny by False Pretences Relating to Contracts, Banking Transactions or Credit (11 counts). Brown is scheduled to be sentenced on November 10 by Judge Raymond Brassard.
Brown led Boston Equity Investments (“BEI”), a criminal enterprise headquartered at Andrew Square in Boston. Brown and others misrepresented to the lenders the overall nature of the real estate transactions that BEI handled, as well as the financial background of the homebuyers. Brown collected $1.5 million of the fraudulently obtained money, which he used to pursue an extravagant lifestyle.
“The defendants in this case corrupted every aspect of the real estate industry for their personal financial gain and at the expense of lenders, homebuyers, and communities in Boston, which were left with abandoned and foreclosed homes,” AG Coakley said. “We are pleased that the jury has returned these convictions against the leader of this scheme. The prosecution of mortgage fraud is an important priority of this office, and we will continue to pursue instances of corruption in the real estate industry.”
Five co-defendants previously pled guilty in connection with their roles in this case. On March 4, 2011, John Sweetland, of Yorba Linda, California, pleaded guilty in Suffolk Superior Court to charges of Larceny over $250 (33 Counts), Making or Publishing False or Exaggerated Statements (11 counts) and Attempt to Make or Publish False or Exaggerated Statements (3 counts).
On November 23, 2010, mortgage broker Brian Arrington of Boston pleaded guilty to charges of Larceny over $250 (24 counts), Attempted Larceny Over $250, and Making or Publishing False or Exaggerated Statements (13 counts).
On November 17, 2010, Brian Frank of New Hartford, New York, pleaded guilty to charges of Larceny over $250 (78 Counts), Making or Publishing False or Exaggerated Statements (26 counts) and Attempt to Make or Publish a False or Exaggerated Statement (2 counts).
On November 17, 2010, mortgage broker Linda Defeo of Springfield, pleaded guilty to charges of Larceny over $250 (10 counts), Making or Publishing False or Exaggerated Statements (6 counts), and Attempted Larceny over $250.
On April 8, 2010, former attorney Bruce Namenson of Walpole, pleaded guilty to charges of Larceny over $250 (18 Counts), Making or Publishing False or Exaggerated Statements (9 Counts), and False Written Reports by Public Officer or Employee (4 Counts).
The Attorney General’s Office began an investigation into the defendants’ activities in April 2008, after receiving complaints from homebuyers. Investigators discovered that Brown operated Boston Equity Investments (“BEI”) in Boston, while Frank operated Freedom Equity Investments (“FEI”) in Hillsborough, NJ. FEI recruited persons interested in investing in multi-family homes through BEI. In addition, Sweetland operated Boston Investment Marketing (BIM), another BEI recruitment wing in Canton, which would identify potential investors. BEI advertised itself as a real estate investment company, although BEI and its employees were not licensed real estate brokers. BEI advertised online and at real estate conventions in several states.
Brown, Frank and Sweetland, and others acting at their behest (hereinafter referred to individually or collectively as “BEI”) identified owners of multi-family properties who had properties for sale for long periods of time. They approached the property owners and convinced them to give BEI an “option” to sell the properties at prices below the current for sale listing prices. BEI simultaneously recruited homebuyers to purchase the same properties as “investments,” promising them that in return for their purchasing properties through BEI, BEI would rent, renovate and resell the properties. BEI told the homebuyers that their investments would help revitalize neighborhoods in the Greater Boston area. BEI acquired inflated property appraisals for the sellers’ properties. The appraisals were consistently well above the list prices that the sellers could not sell the homes for. In order to acquire inflated appraisals, Brown and others instructed real estate brokers to raise the listing prices of the properties, and falsely claimed that extensive recent property renovations had been made.
In addition to acquiring inflated appraisals, Brown, Frank and Sweetland obtained false purchase and sale agreements between the homebuyers and sellers. Unbeknownst to the homebuyers and lenders, BEI arranged for the sellers to receive much less money for the property sales than the maximum amount of financing that BEI was able to fraudulently extract from the lenders in the homebuyers’ names.
Brown, Frank and Sweetland conspired with mortgage brokers Linda Defeo and Brian Arrington to submit loan applications to financial lending institutions with false information in order to secure 100% financing for the homebuyers’ purchases. Brown, Frank and Sweetland, with Arrington’s and Defeo’s assistance, inflated borrowers’ incomes and savings, misrepresented where and for how long the borrowers had been employed, and falsely stated that the borrowers intended to use the properties as primary residences instead of as investment properties. BEI also deposited money into some of the homebuyers’ bank accounts to make it appear as if they qualified for mortgage loans. Several homebuyers acquired mortgage loans through Defeo and Arrington to purchase several properties through BEI. In these instances Defeo and Arrington, in conspiracy with BEI, did not disclose the homebuyers’ new debts to the lenders, thereby misrepresenting the extent of the homebuyers’ debts on their loan applications. In some instances BEI created phony lease documents and forged the names of homebuyers and non-existent tenants, thereby claiming that certain homebuyers were receiving thousands of dollars in rental income from homes that they owned. Defeo and Arrington rushed the homebuyers through the loan application process and told them that they did not have to disclose all of their debts to the lenders.
Brown, Frank and Sweetland submitted the inflated property appraisals and false purchase and sale agreements to the lenders through Arrington and Defeo. Meanwhile, Brown, Frank and Sweetland intentionally did not provide the lenders with copies of the option agreements, which showed the much lesser, and true, sales prices that the sellers had agreed to sell the properties for. Instead, on the homebuyers’ loan applications and on HUD-1 settlement statements, it was falsely claimed that there were true, contracted purchase and sale agreements between the homebuyers and sellers for the greater amounts of money.
The lenders required that the homebuyers bring cash, sometimes tens of thousands of dollars, to the real estate closings. Former attorney Bruce Namenson, in conspiracy with Brown and Frank, misrepresented on closing settlement statements that the homebuyers brought cash to the closings, when he and Brown and Frank knew that the borrowers did not do so. Namenson, in conspiracy with Brown and Frank, sent a business associate to several states to obtain homebuyers’ signatures on documents critical to the real estate closings. Later, Namenson notarized the documents claiming that the homebuyers had signed the documents in Namenson’s presence in Massachusetts.
In the end, at the home sale closings, BEI manipulated the closings and, unbeknownst to the homebuyers and lenders, pocketed the difference between the true prices that the sellers agreed to sell the properties for in the option agreements, and the inflated purchase and sale prices, which was usually between $50,000 and $100,000.
After the homebuyers purchased the properties, Brown intentionally did not fulfill the promises that he and BEI made to the homebuyers, including renting, renovating and reselling the properties. The homebuyers and lenders were left with properties not worth the loans the borrowers obtained to purchase the properties. The homebuyers’ credit was ruined, and they were severely financially injured. Some homebuyers lost their life savings. All of the homes were foreclosed or short sold at great losses to the homebuyers and lenders. Neighborhoods in the Boston area, particularly in Dorchester, East Boston and Chelsea, were left with empty and unrented homes.
A Suffolk County Grand Jury returned indictments against all six defendants on December 21, 2009. Brown was arrested the same day and was arraigned in South Boston District Court and subsequently released on $75,000 bail. Brown was arraigned on January 6, 2010, at which time he pled not guilty and was released on $75,000 bail. Brown was convicted yesterday following three days of jury deliberations and will be sentenced November 10. Brown’s bail has been revoked and he is being held pending sentencing.
These cases were prosecuted by Assistant Attorney General Brendan O’Shea. Assisting in the prosecution of Joshua Brown were Assistant Attorney General Jessica Massey, Victim Witness Advocate Shannon Legrice, and Investigators Tracy Wetterlow, Christopher Gabriel and Rose Bagalawis. Assisting in the BEI investigation were Massachusetts State Police assigned to the Attorney General’s Office and investigators from the Attorney General’s Financial Investigations Division.