They were presented as investment opportunities, with live marketing pitches at luxury hotels in Beverly Hills, Calif., and Washington, D.C., for a plan that claimed to return enough money to pay off the mortgage on a dream home.
But in reality, the plan was nothing more than a mortgage fraud Ponzi scheme, investigators say. The accused fraudsters allegedly deceived individuals to invest in sham business ventures, claiming that the revenue would be used to make payments on their home mortgages.
But authorities say that the investments weren't profitable, and instead left more than 1,000 people who had poured a minimum of $50,000 each into the alleged Ponzi scheme scrambling to make mortgage payments they believed were taken care of, while the company's executives drew six-figure salaries, were chauffeured around in luxury cars and traveled in style to 2007 NBA All-Star Game and Super Bowl.
The Justice Department announced today that five people are now facing charges that they promoted complicated plans under a network of companies, known collectively as "Metro Dream Homes," an alleged scheme that targeted homeowners and those ready to purchase homes.
A federal grand jury indicted Andrew Hamilton Williams Jr., 58, or Hollywood, Fla., Michael Anthony Hickson, 46, of Commack, N.Y., Isaac Jerome Smith, 46, of Spotsylvania, Va. and Alvita Karen Gunn, 31, of Hanover, Md., who served as executives in the company. They face conspiracy, wire fraud, bank fraud aiding and abetting and money laundering charges.
Prosecutors have charged a fifth defendant, Carole Nelson, 50, of Washington, D.C., in separate charging documents known as a criminal information.
According to the charging documents, the more than 1,000 individuals invested as much as $70 million, but once Metro Dream Homes stopped making the mortgage payments the homeowners were left having to make their own payments.
The alleged scheme purported to be a mortgage payment plan and required investors to pony up $50,000 per home involved in the program, plus fees of up to $5,000.
'Dream Home' Investment or Scam?
In return for the investment, "Metro Dream Homes promised to pay investors mortgage payments for up to seven years. At the end of seven years, MDH promised they would pay off the mortgage in return for one half interest in the home," Maryland U.S. attorney Rod Rosenstein said at a Justice Department press conference. "Many victims refinanced their existing homes and gave the proceeds to the defendants."
According to the indictment, the Dream Homes Program told investors that their investments would pay for ATMs, flat-screen TVs used to display paid advertisements and "Touch-N-Buy" kiosks that sold phone calling cards and business advertisements. The defendants set up seminars at luxury hotels to promote their alleged scheme, officials said.
"Metro Dream Homes business never generated any significant revenue. Metro Dream Homes made some mortgage payments but only by using money from new investors to pay mortgages of earlier investors," Rosenstein said.
"What we're looking at today is a mortgage fraud, a securities scam and a Ponzi scheme all rolled up into one," Maryland Attorney General Doug Gansler said. "The name of Dream Homes was truly a nightmare for so many people in Maryland, which resulted in so much money being lost."
"The effects of this wide-ranging mortgage fraud scheme are particularly disturbing within the backdrop of today's economic environment. With our federal, state and local partners working on 18 mortgage fraud task forces and 47 mortgage fraud working groups across the country, the FBI is committed to combating mortgage fraud and other financial crimes nationwide to protect the American homeowner and the national economy," said Executive Assistant Director Thomas J. Harrington of the FBI's Criminal, Cyber, Response, and Services branch.
The Justice Department and U.S. attorney's office worked closely with the Maryland Attorney General and the IRS on the case. In August of 2007, the Maryland Securities Commission issued cease and desist orders to Dream Homes, requiring the company to stop offering unregistered securities connected to its program.
DOJ to Would-Be Fraudsters: 'We Will Find You'
Defendant Michael Hickson also faces perjury charges in connection to the alleged securities fraud for allegedly testifying at a Commission hearing that the Dream Home Program was not dependant on new investors putting money into the program.
Mortgage fraud cases have been steadily growing the past several years. Today Lanny Breuer, they newly installed Assistant Attorney General of the Criminal Division, warned would-be fraudsters that the Justice Department would be increasing its enforcement operations.
"We will find you, we will prosecute you and we will put you in jail." Breuer said.
Testifying before a congressional committee last week, U.S. Attorney General Eric Holder said that he would shortly be examining the possibility of a nationwide financial crimes or mortgage fraud task force.
"We are going to be talking about very soon a financial fraud task force... I think there needs to be a more comprehensive view," he said.