Feds Score Eight More Guilty Pleas In Northern California Foreclosure Auction Bid-Rigging Sweep; Sherman Act Violations Leave Investors In Hot Water

From the U.S. Department of Justice:

• Eight California real estate investors have agreed to plead guilty for their roles in two separate conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.(1)

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• According to the felony charges, the real estate investors participated in a conspiracy to rig bids by agreeing to refrain from bidding against one another at public real estate foreclosure auctions in Contra Costa County and Alameda County, Calif.

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• The department said that the primary purpose of the conspiracies was to suppress and restrain competition to obtain selected real estate offered at Alameda and Contra Costa County public foreclosure auctions at noncompetitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner.(2)

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• Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. [...] The Antitrust Division and the FBI have identified a pattern of collusive schemes among real estate investors aimed at eliminating competition at real estate foreclosure auctions, and [the] charges are part of the department’s ongoing effort to combat this conduct and restore competition to public auctions.(3)

For the Department of Justice press release, see California Real Estate Investors Agree to Plead Guilty to Bid Rigging at Public Foreclosure Auctions (Investigation Yields Eight Plea Agreements).

(1) According to the press release, charges were filed in U.S. District Court for the Northern District of California in Oakland, Calif., against Thomas Franciose of San Francisco; William Freeborn of Alamo, Calif.; Robert Kramer of Oakland, Calif.; Thomas Legault of Clayton, Calif.; David Margen of Berkeley, Calif.; Brian McKinzie of Hayward, Calif.; Jaime Wong of Dublin, Calif.; and Jorge Wong of San Leandro, Calif.

(2) According to the Justice Department and/or court documents:

• after the conspirators’ designated bidder bought a property, the conspirators would hold a secret, private auction at which each participant would bid the amount above the public auction price he was willing to pay;


• secret, private auctions took place at or near the courthouse steps where the public auctions were held where the highest bidder at the private auction won the property;


• the difference between the public auction price and that at the second auction was the group’s illicit profit, and it was divided among the conspirators, often in cash.

(3) The investigation into fraud and bid rigging at certain real estate foreclosure auctions in Northern California is being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco office. The Justice Department urges anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm or call the FBI tip line at 415-553-7400.