Tuesday, January 22, 2013

Prosecutors To Push For 14 Years For Scam Head Who Used Control Of Entire R/E Closing Process To Pocket Refinance Procceds From 40+ Victimized Homeowners, Leaving Dozens Of Existing Mortgages Unpaid; Squealing Confederates Expect Probation, Dodge Jail

In Freehold, New Jersey, the Monmouth County Prosecutor's Office recently announced:

  • Frederick Tropeano pleaded guilty [] to laundering millions of dollars through an extensive mortgage refinance fraud scheme that victimized more than 40 homeowners in New Jersey and New York, Acting Prosecutor Christopher J. Gramiccioni announced.

    Tropeano, 46, of Holmdel, pleaded guilty to first-degree financial facilitation of criminal activity (money laundering) before Monmouth County Superior Court Judge Ronald L. Reisner.

    Tropeano, who has been incarcerated in lieu of bail since the date of his arrest on July 21, 2010, was remanded to the Monmouth County Correctional Institution. Tropeano’s sentencing was scheduled for March 22.

    In accordance with his plea agreement, the Monmouth County Prosecutor’s Office will recommend that Tropeano is sentenced to 14 years in prison, with a 7-year period of parole ineligibility.  The Office will also recommend that Tropeano be required to make full restitution to his victims as a condition of his sentence.

    The year-long investigation revealed that Tropeano and a number of his associates from Hawthorne Capital Corporation (Hawthorne), formerly of Manalapan and New York City, engaged in a systematic scheme to defraud dozens of homeowners and financial institutions throughout New Jersey and New York – a fraudulent investment system often referred to as a “Ponzi” scheme.

    The investigation began in May 2010 after a homeowner contacted the Office regarding concerns she had about her home refinance with Hawthorne. The homeowner indicated that a check sent by Hawthorne, that was intended to pay off her original mortgage, had bounced with non-sufficient funds to support its deposit.

    Further investigation uncovered widespread and ongoing fraud within the company, to include 11 additional homeowners who were defrauded by Hawthorne in the refinance of their homes, as well as an attorney in New York whose identity had been stolen and used in furtherance of the fraud.

    The president of Hawthorne was identified in corporate filings as Silvano Tropeano, the father of Frederick Tropeano. Hawthorne had offices in New Jersey, New York and Pennsylvania, although the principal location of its operations was in Manalapan. Frederick Tropeano was identified as the individual responsible for the daily business operations at Hawthorne.

    The mortgage refinance fraud scheme was perpetrated by Tropeano and his conspirators’ ability to manipulate and control the entire property settlement process. An example of the fraud scheme is as follows:

    Homeowners would refinance with Hawthorne and banks would thereafter issue mortgage funds at settlement to refinance the properties. Rather than using these funds to appropriately pay off a homeowner’s original mortgage, Tropeano and his conspirators diverted and stole settlement funds and used the money to enrich themselves or members of their families, or alternatively used them to pay other outstanding and unrelated business debts.

    Two title [companies] directly involved with Hawthorne - “Hawthorne Abstract” and “Rapid Abstract” – intentionally failed to conduct proper records checks to determine whether prior mortgages were being paid.

    Title companies are required to ensure that original mortgages are paid in full, and new refinance mortgages are properly recorded as an existing mortgage debt. Since Tropeano and his associates operated these related title companies, they effectively controlled the entire “vertical” refinance process and were therefore able to defraud homeowners who expected their homes to be refinanced, and banks that expected to have mortgage debts repaid or new debts properly recorded.

    As the investigation progressed, investigators determined that more than 40 homeowners had been victimized by Hawthorne’s refinance scam. In some instances, funds that were intended to pay off the homeowners’ original mortgages were significantly delayed, resulting in negative reports on their credit scores and the need to hire legal counsel.

    In other instances, payoffs never occurred, leaving the homeowners with two mortgages attached to their properties.

    Tropeano and his associates also stole the identities of two homeowners who had filled out initial refinance applications, and illegally used these identities to cause financial lending institutions to fund refinances that never actually occurred.

    The total amount of calculated theft perpetrated by Tropeano and his associates was more than $7.5 million.

    To further the refinance fraud scheme, Frederick Tropeano and Silvano Tropeano established fraudulent bank accounts in the names of two attorneys, and listed them as the settlement agents on mortgage refinances without their knowledge or consent.

    Co-defendant John Kosta conducted the closings on the new mortgages and also notarized documents required for the closings, despite the fact that Kosta was not a notary or licensed to conduct such closings.

    As a further part of the scheme, co-defendant Krista Selig, Esq., was listed as the settlement attorney on 12 fraudulent closings and facilitated the fraudulent transactions on behalf of Hawthorne.

    Silvano Tropeano, John Kosta, and Krista Selig, Esq. all pleaded guilty earlier last year to third-degree conspiracy charges before Superior Court Judge Thomas F. Scully and are pending sentence.  Selig also pleaded guilty to a single third-degree theft count.

    All defendants agreed to cooperate in the prosecution of their co-defendants and are expected to receive probationary sentences.(1)
For the Monmouth County Prosecutors's Office press release, see Fraudster Admits To Laundering More Than $7.5 Million, And Defrauding Dozens In Widespread Mortgage Refinance Fraud Scheme.

(1) "When a conspiracy is exposed by an arrest or execution of search warrants, soon-to-be defendants know that the first one to "belly up" and tell what he knows receives the best deal. The pressure is to bargain and bargain early, even if an indictment has not been filed." United States v. Moody, 206 F.3d 609, 617 (6th Cir. 2000) (Wiseman, J., concurring) (referring to the not-uncommon 'race to the prosecutor's office' that breaks out among participants in an 'about-to-fall-apart' criminal conspiracy).

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