Illegal Bid Rigging Racket? Or Mere Innocent 'Joint Bidding' Arrangement?

Real estate investors and others who have gotten themselves pinched on charges alleging participation in an illegal bid rigging scam at a public auction(1) may wish to consider an observation made by a Colorado Appeals Court in a 2010 ruling in considering whether to mount a defense before deciding to 'race to the prosecutor's office' and spill their guts about the racket, throwing their co-conspirators under the bus in the process in an attempt to beat the rap, or at least reduce any anticipated prison sentence.(2)

In the ruling, the court made the following distinction between what you can do and what you can't do when teaming up with others when bidding at auctions (bold text is my emphasis):

• Federal antitrust cases distinguish between unlawful bid rigging and lawful joint bidding. Bid rigging has been found when two or more competitors coordinate their bids to a third party. United States v. Mobile Materials, Inc., 881 F.2d 866, 869 (10th Cir. 1989).
  
  However, "[b]id rigging should not be confused with joint bidding, which allows bidders to pool their resources to place bids on property which they would otherwise be unable to afford." Love v. Basque Cartel, 873 F. Supp. 563, 577 (D. Wyo. 1995), aff'd sub nom. Dry Creek Cattle Co. v. Basque Cartel, 95 F.3d 1161 (10th Cir. 1996) (unpublished table decision).[7](3)
  
  In Love, 873 F. Supp. at 566, 568, on which the trial court relied, the court determined that the bidding at an auction for a 90,000-acre ranch did not constitute bid rigging because the auction encouraged joint bidding: in early rounds, bids were taken on individual subdivided parcels; in later rounds, bids were taken on the ranch as a whole. Id. at 567, 578.
  
  The Love court concluded that in pooling their resources to bid on the entire ranch, the individual defendants had not suppressed competition as to the individual parcels. Id. at 577. And it found no evidence that anyone had been prevented from bidding on the entire ranch. Id.

***

• In United States v. Guthrie, 814 F. Supp. 942 (E.D. Wash. 1993), aff'd, 17 F.3d 397 (9th Cir. 1994) (unpublished table decision), a bidder who twice paid other bidders not to attend foreclosure sales at which he submitted winning bids for $1 above minimum bid levels was convicted of bid rigging.
  
  Although unlike here Guthrie rigged the bids before the sales, the court's explanation of the anticompetitive nature of bid rigging as "an agreement between two or more persons to eliminate, reduce, or interfere with competition for a job or contract that is to be awarded on the basis of bids," is instructive. Id. at 949.

For the court's ruling, see Amos v. Aspen Alps 123, LLC, No. 08CA2009 (Colo. App. 2010),(4) which decided how to apply the foregoing cases to the facts before it, and its legal analysis in considering whether a foreclosure sale tainted by illegal bid rigging should be voided.

(1) See e.g. California Real Estate Investors Agree to Plead Guilty to Bid Rigging at Public Foreclosure Auctions (Investigation Yields Eight Plea Agreements).

(2) "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 courthouse' that breaks out among participants in an uncovered criminal conspiracy).

(3) In Kearney v. Taylor, 56 U.S. 494, 520 (1853), the Court explained that if "[t]he property at stake might be beyond the means of the individual, or might absorb more of them than he would desire to invest in the article, or be of a description that a mere capitalist, without practical men as associates, would not wish to encumber himself with," an agreement established joint bidding, rather than bid rigging. Joint bidding does "not . . . prevent competition, but . .. enable[s] . . . the persons composing [the agreement] to participate in the biddings." Id. at 521. However, "shutting out competition, and depressing the sale, so as to obtain the property at a sacrifice" is bid rigging. Id.

(4) Subsequent History: Writ of certiorari granted in part and denied in part Amos v. Aspen Alps 123, LLC, 2011 Colo. LEXIS 279 (Colo. Mar. 28, 2011).

Accused F'closure Sale Bid-Riggers Dodge Bullet As Rocky Mountain Supremes Uphold 'Joint Bidding' Defense In Civil Suit Brought By Foreclosed Owner

In Aspen, Colorado, the Aspen Daily News reports:

• The Colorado Supreme Court on Monday ruled in favor of bidders at a 2007 foreclosure auction for an Aspen condo who were accused by the former owner of collusion and bid rigging.
  
  
• The case of Amos v. Aspen Alps 123, LLC, stems from the foreclosure sale conducted in February 2007 for a condo in the slopeside Aspen Alps complex that was owned by Betty Amos and the estate of her late husband Thomas Righetti. Amos had used the condo as collateral for a $1.6 million loan that had fallen into default, and Equitable Bank of Florida, which made the loan, initiated foreclosure proceedings.
  
  
• The bank submitted a credit bid of $1.6 million, and three other bidders participated in the auction on the Pitkin County Courthouse steps. They were Debra Mayer of Aspen, Mike Seguin of Aspen and Thomas Griffin, who was there on behalf of James Flaum, of the Vail area. The initial bidding was competitive, and Seguin submitted what was ultimately the final bid of $1.86 million.
  
  
• However, according to legal documents on file in the case, after Seguin entered the $1.86 million bid, Griffin suggested that “instead of bidding the property up further and further,” the three parties stop bidding and form an LLC which would allow them to split the purchase three ways. All agreed, and they formed Aspen Alps 123, LLC, which was granted title to the condo by the Pitkin County Public Trustee in August 2007.
  
  
• At issue in the case was whether the agreement, made by three people who had never met before the auction, was merely “joint bidding,” which is permissible, or rose to the level of “bid rigging,” which violates state and federal antitrust laws.
  
  
• The difference, according to relevant case law, is that joint bidding occurs when two or more people pool their resources to buy a property that they could not have afforded individually. Bid rigging is when parties collude to stifle competition.
  
  
• In a 6-1 vote, the justices found that “we cannot say based on the limited evidence in the record that the purpose of the individuals joining to purchase the property was to eliminate, reduce, or interfere with competition.” Chief Justice Michael Bender, however, wrote a dissenting opinion and found that bid rigging did occur.
  
  
• Amos also contended that the sale should be voided because the bank failed to properly notice the foreclosure sale to the estate, which included Righetti’s daughter, Brandy Righetti. Judges at the district and appellate court level never supported this argument, because Amos herself — who is a representative of the estate — was properly noticed. One of the seven Supreme Court justices wrote a dissenting opinion in favor of Amos’ arguments on the notice issue, but no other justices concurred.
  

***

• In backing the bidders, the court relied on testimony they offered during the initial trial, when Mayer and Flaum said that the bidding had exceeded the funds they had at their disposal. Mayer stopped bidding at $1.75 million, and Griffin was authorized by Flaum to spend no more than $1.8 million, according to the testimony. It was Mayer’s testimony that after Seguin had entered the $1.86 million bid, Griffin suggested the parties “stop bidding the property up further and further” and the three agree to a joint-purchase arrangement.
  
  
• The Supreme Court, in its 20-page majority opinion, noted that the joint purchase arrangement did not shut any other bidders out of the process, because no one else was participating in the auction.

***

• Chief Justice Bender, in his dissenting opinion, cited the bidders’ own admitted intentions to stop the bidding process and keep the price from rising further. Justices in the majority are basing their exoneration of the bidders on the “self-serving testimony” that neither Mayer nor Flaum could afford to match Seguin’s final bid, he wrote.
  
  
• “The existence of a conspiracy to rig an auction is neither dependent on the success of the conspiracy nor on any showing that the agreement injured the seller by negatively impacting the final sale price,” Bender wrote. “In the present matter, the parties explicitly agreed to stop bidding to prevent the auction price from rising. This is the definition of anti-competitive behavior.”(1)
  

For the story, see Foreclosure sale was not bid rigging, supremes rule.

For the court ruling, see Amos v. Aspen Alps 123, LLC, 2012 CO 46, No. 10SC187 (June 18, 2012).

For earlier, related posts, see:

• Illegal Bid Rigging Racket? Or Mere Innocent 'Joint Bidding' Arrangement?,
• Joint Purchase By Three Investors At Foreclosure Auction Deemed Bid Rigging By Colorado Appeals Court.

(1) Beware of dissenting opinions! Notwithstanding Colorado Supreme Court's overwhelming 6-1 vote upholding the 'joint bidding' defense in this case, the persuasiveness of Chief Justice Bender's logic in his dissenting opinion could be relied on by the Colorado state legislature to pass a statute specifically declaring the existence of a bid-rigging racket if the facts in future cases are similar to those in this case. See, for example, Foreclosing Lender's Failure To Serve Junior Lienholder Now OK In Indiana; New Law Reverses State High Court Ruling, Now Permits Lawsuit 'Do-Overs', reporting that Indiana Supreme Court Justice Frank Sullivan, Jr.'s lone dissent in the case (a 4-1 ruling), Citizens State Bank of New Castle v. Countrywide Home Loans, Inc. 949 N.E.2d 1195 (2011), formed the basis of a subsequently-passed statute that reversed the effect of the court ruling for future cases.

Further, there is nothing stopping judges in other states/jurisdictions from 'leaning' on Chief Justice Bender's logic in reaching a contrary conclusion to that of the majority in this case. See, for example, Highlights From Recent Oregon Court Ruling Booting MERS, in which a U.S. District Judge in Oregon gave significant consideration to the observations of a Minnesota Supreme Court Justice's dissenting opinion in Jackson v. Mortgage Electronic Registration Systems, Inc., 770 N.W.2d 487 (Minn. 2009) when reaching his decision. According to Chief Justice Bender:

• ¶42 The majority reasons that the bidders’ agreement did not constitute unlawful bid rigging, but was instead lawful “pooling” of the bidders’ resources to create a joint bid similar to the arrangement that the Wyoming Federal District Court found to be lawful in Love v. Basque Cartel, 873 F.Supp. 563 (D. Wyo. 1995). Maj. op. at ¶ 33. Specifically, the Love court warned that “[b]id rigging should not be confused with joint bidding, which allows bidders to pool their resources to place bids on property which they would otherwise be unable to afford.” 873 F.Supp. at 578. I disagree with the majority’s reliance on Love because that case is easily distinguished from the present matter.
  
  ¶43 In Love, the court based its ruling that the joint bidding agreement constituted lawful bid pooling on three reasons.
  
  First, the Love court was persuaded by the fact that the parties to the joint bidding agreement were never in competition because each was only interested in owning a distinct parcel of the larger ranch that their joint bid succeeded in winning. Id. at 577-78.
  
  Second, the Love court reasoned that it was significant that the was no evidence that others that were present at the auction were prevented from matching or exceeding the joint bidders’ final bid. Id. at 578.
  
  Finally, the Love court held that the agreement constituted lawful joint bidding because the evidence showed that in the absence of the joint bidding agreement, the reserve would not have been met for several of the parcels and therefore the auction would have failed. Id. at 579.
  
  ¶44 Each of these rationales is inapplicable to the auction in this case.
  
  First, there was only one parcel, the condo, and all three bidders were bidding competitively against one another to obtain the property in its entirety.
  
  Second, unlike in Love, where there were other bidders that may have competed against the joint bidders, here, all of the bidders present at the auction colluded to stop bidding. Their collusive behavior, which occurred while the auction was underway, destroyed any incentive among the bidders to match or to exceed the final bid.
  
  Finally, the reserve (or minimum bid amount) was met well before the parties conspired to stop bidding up the price of the auction. Thus, the success of the auction, in surpassing the reserve, was not contingent upon the parties’ ability to submit a combined bid. Although I am mindful of Love’s warning that ““[b]id rigging should not be confused with joint bidding,” id. at 577, Love should not control this case. I acknowledge that, under certain circumstances, a combined bid may actually serve to foster competition by allowing joint bids to reach ever higher. In this case, however, the combined bid served to cut off all competition and, in the words of one of the bidders, “stop the bidding process.”
  
  ¶45 Indeed, in direct contradiction to the facts in Love, the uncontroverted evidence here shows that the bidders did not come together to make the final, winning bid.
  
  Rather, after several rounds of bidding, Seguin, in his individual capacity, bid $1.86 million, and then, once that bid was submitted, Griffin (representing Flaum) approached Meyer and Seguin and “proposed to the others that, instead of ‘bidding the property up further and further,’ they cease bidding against each other and buy the property jointly.” Maj. op. at ¶ 6.
  
  Unlike in Love, where, prior to the final round of bidding, the bidders pooled their bids to reach a price that they otherwise could not afford, here, Seguin could have afforded the final bid price independent of the financial contributions of the other bidders.
  
  ¶46 Seguin won the auction with his individual bid, and it was not until after the close of the auction that the parties came together to form Aspen Alps. At the time that their anti-competitive agreement occurred, Seguin held the high bid independent of the others. Thus, the incentive for him to join in the agreement was to prevent the auction price from getting bid up “further and further.”
  
  Seguin was able to buy-off his competitors by agreeing to “form an LLC and stop the bidding process.” In my view, their agreement represented a classic bid rigging scheme. It constituted an “’agreement between competitors pursuant to which contract offers are to be submitted to or withheld from a third party.’” Love, 873 F.Supp. at 576 (quoting United States v. Mobile Materials, Inc., 881 F.2d 866, 869 (10th Cir. 1989), cert. denied 493 U.S. 1043 (1990)).
  
  ¶47 The majority reasons that this scheme did not constitute bid rigging because the non-winning bidders, Flaum (who was represented by Griffin at the auction) and Meyer, each provided self-serving testimony that they could not afford to match Seguin’s final, winning bid. Maj. op. at ¶¶ 34-35.
  
  In my view, this misapprehends federal bid rigging jurisprudence, which has long recognized that the existence of a conspiracy to rig an auction is neither dependent on the success of the conspiracy nor on any showing that the agreement injured the seller by negatively impacting the final sale price. See ABA Section of Antitrust Law, Model Jury Instructions in Criminal Antitrust Cases 61 (2009) (“Bid Rigging”).
  
  Rather, the relevant inquiry is whether the “aim and result” of the conspiracy was “the elimination of one form of competition.” Id. Thus, the sole issue in determining whether a joint bidding scheme constitutes unlawful bid rigging is whether it produces an anti-competitive result. In the present matter, the parties explicitly agreed to stop bidding to prevent the auction price from rising. This is the definition of anti-competitive behavior. Id. (“A conspiracy to rig bids may be an agreement among competitors about . . . who should be the successful bidder . . . or who should refrain from bidding . . . that affects, limits, or avoids competition among them.”).
  
  ¶48 Finally, I do not agree with the majority’s implication that the fact that the bidders’ agreement was made during—rather than before—the auction supports the conclusion that this scheme did not constitute bid rigging. Although the majority acknowledges that “a prior agreement is not necessary to prove bid rigging,” maj. op. at ¶ 34, it nevertheless uses this fact to distinguish the present matter from Guthrie, in which the federal district court for the Eastern District of Washington denied a defendant’s motion for judgment of acquittal on bid rigging charges because the defendant had contacted other potential bidders and offered them money to refrain from participating in upcoming auctions. 814 F.Supp. at 943-44, 950.
  
  In my view, from a competitiveness standpoint, this case presents a more troublesome situation than existed in Guthrie. In Guthrie, because the alleged bid rigging occurred prior to the auctions, there was no guarantee that the defendant had bought off every potential bidder that might attend the auction. See id. at 943-44.
  
  In contrast, because the bidders’ agreement in this case was not made until after the auction was already underway, the three bidders were assured that their agreement eliminated all competition.
  
  ¶49 I would hold that the bidders’ agreement constituted unlawful bid rigging in violation of section 6-4-106 and proceed to address the remedy issue consistent with section 6-4-121, C.R.S. (2011), which, in my opinion, would void this unlawful transfer. Accordingly, I respectfully dissent from Part II.B of the majority’s opinion.

Suspects In N. Calif. F'closure Sale Bid Rigging Conspiracies Continue Falling Like Dominoes As 'Antitrust Feds' Ready To Notch Two More Guilty Pleas

From the U.S. Department of Justice:

• Two California real estate investors have agreed to plead guilty [] for their roles in a conspiracy to rig bids and to commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.



• Charges were filed [Friday] in U.S. District Court for the Northern District of California in Oakland, Calif., against Eric Larsen of San Leandro, Calif., and Timothy Powers of Alamo, Calif., for their participation in bid-rigging and mail-fraud conspiracies at public real estate foreclosure auctions in Contra Costa and Alameda counties, Calif.(1)

***

• According to court documents, Larsen and Powers conspired with others not to bid against one another, but instead designate a winning bidder to obtain the title to selected real estate offered at public real estate foreclosure auctions in Contra Costa and Alameda counties.



• Larsen and Powers also were charged with conspiracies to use the mail to carry out a fraudulent scheme to divert money to co-conspirators away from mortgage holders and others by holding private auctions open only to members of the conspiracy and awarding the selected real estate to the conspirators who submitted the highest bids.



• These private auctions took place at or near the courthouse steps where the public auctions were held. The department said that Larsen and Powers also took steps to conceal the payoffs to conspirators for not bidding competitively and caused false and misleading statements to be made on records of public auctions regarding the total purchase price of the selected real estate.



• Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals.(2)

For the U.S. Justice Department press release, see Two California Real Estate Investors Agree to Plead Guilty to Bid Rigging at Public Foreclosure Auctions (Investigation Has Yielded Charges Against 10 Individuals to Date).

Go here for other posts & links on bid rigging at foreclosure and other real estate-related auctions.

Go here for links to more from the U.S. Justice Department on bid-rigging prosecutions.

(1) 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. 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.

(2) As has been pointed out here in an earlier post, suspects who have been pinched on bid-rigging charges and are considering copping guilty pleas should first consider whether their alleged unlawful bid rigging racket was really nothing more than an innocent, lawful joint bidding endeavor. See Illegal Bid Rigging Racket? Or Mere Innocent 'Joint Bidding' Arrangement?

Antitrust Feds Ring Up More Bid-Rigging Convictions Related To Foreclosure Sale Auctions; Snagged Alabama Duo Agree To 'Sing' Against Co-Conspirators

In Mobile, Alabama, the Press Register reports:

• Two real estate investors from the Mobile area have agreed to plead guilty to federal bid-rigging charges accusing them of manipulating auctions of foreclosed properties. According to plea agreements filed this week in U.S. District Court in Mobile, Harold M. Buchman and the company he co-owns, M&B Builders, conspired with Allen K. French and others to suppress bids at foreclosure auctions. Prosecutors allege that the conspiracy dated to May 2001 and lasted until at least March of last year.

***

• “The Antitrust Division continues to vigorously pursue bid-rigging conspiracies at real estate foreclosure auctions, and will work with its law enforcement partners to ensure that the process is fair and open so that consumers will benefit from competition,” [Acting Assistant Attorney General Sharis A.] Pozen stated.(1)

***

• An attorney for French, Walter Honeycutt, said he expects indictments against other investors. The plea agreements for Buchman and French both reference their cooperation in the ongoing investigation.(2)



• Foreclosure auctions typically are held at the county courthouse and allow mortgage holders to recoup the money they lose when homeowners default on their loans. Prosecutors contend that Buchman, French and others who have not been charged decided among themselves who would bid on various properties, while the others agreed not to compete.



• “When it started out, it was kind of a gentlemen’s agreement,” Honeycutt said. Then someone else took over the operation and implemented a formal scheme, Honeycutt said.



• After one investor would get the property cheaply, according authorities, participants would hold a secret second auction among themselves. The winning bidder would make payoffs to other investors for not competing at the public auction, according to the allegations. The money would be paid out based on predetermined specifications. “It’s a complicated formula,” Honeycutt said.

***

• The plea agreement calls for M&B Builders to plead guilty to violating the Sherman Antitrust Act and attempted mail fraud conspiracy. The company will pay a $250,000 fine and restitution in the amount of $18,345.20, under the agreement.



• Buchman and French agreed to plead guilty to one count each of antitrust violations. Buchman will serve 6 months in prison and pay a fine of $21,141 and at least $30,000 in restitution. The plea document requires him to do all of his time in a minimum-security prison (ie. a 'Club Fed' facility(3)) and not home confinement or a halfway house.



• French, meanwhile, agreed to pay a $20,000 fine and at least $23,000 in restitution. Under the terms, the judge would be required to sentence him to 6 months or less in prison.(4)

For the story, see Mobile real estate investors agree to plead guilty to manipulating foreclosure auctions.

For the U.S. Department of Justice press release, see Alabama Real Estate Investors Agree to Plead Guilty to Conspiracy to Rig Bids for the Purchase of Real Estate at Public Foreclosure Auctions.

Go here for other posts & links on bid rigging at foreclosure and other real estate-related auctions.

(1) According to a U.S. Department of Justice press release, 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 these charges are part of the department’s ongoing effort to combat this conduct and restore competition to public auctions.

The investigation into fraud and bid rigging at certain real estate foreclosure auctions in Southern Alabama is being conducted by the Antitrust Division’s Atlanta Field Office and the FBI’s Mobile Field Office, with the assistance of the U.S. Attorney’s Office for the Southern District of Alabama. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s Atlanta Field Office at 404-331-7100 or visit www.justice.gov/atr/contact/newcase.htm.

See Foreclosure Auction Buyer: "Object Is To Get Cheapest Price We Can, Not To Bid Each Other Up" As Intimidation Accusations Flare Up At Courthouse Sales for an indication that these bid-rigging rackets at foreclosure sales appear to be pretty blatant activities that are often perpetrated with impunity.

(2) Evidently, Buchman and French have concluded that there is no honor among thieves and, consequently, have decided to throw their co-conspirators under the bus by beating them in the 'race to the prosecutor's office' and agreeing to cooperate with the Feds in an effort to save their butts. This time-honored approach to saving one's own rump has been cogently articulated by at least one learned federal judge:

• "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 courthouse' that breaks out among participants in an uncovered criminal conspiracy).

(3) Possibly something 'comfy' and nearby the Mobile area so their families can stop by and visit them often, along the lines of the prison camp formerly located at Eglin Air Force Base in Ft. Walton Beach, Florida, or maybe the one over at the Pensacola Naval Air Station, in Pensacola, Florida.

(4) As has been pointed out here in an earlier post, suspects who have been pinched on bid-rigging charges and are considering copping guilty pleas should first consider whether their alleged unlawful bid rigging racket was really nothing more than an innocent, lawful joint bidding endeavor. See Illegal Bid Rigging Racket? Or Mere Innocent 'Joint Bidding' Arrangement?

Feds Bag Three More Northern California Real Estate Operators On Charges Of Bid Rigging At Public/Courthouse Foreclosure Sales

From the U.S. Department of Justice:

• Three Northern California real estate investors have agreed to plead guilty today for their roles in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced. To date, as a result of the ongoing investigation, 20 individuals have agreed to plead guilty.



• Charges were filed [] in U.S. District Court for the Northern District of California in Oakland, Calif., against Barry Heisner of Brentwood, Calif.; Dominic Leung of Alameda, Calif.; and Hilton Wong of San Ramon, Calif.



• According to court documents, for various lengths of time between August 2008 and January 2011, Heisner, Leung and Wong conspired with others not to bid against one another at public real estate foreclosure auctions. Instead, the investors designated a winning bidder to obtain selected properties at public real estate foreclosure auctions in Contra Costa County.

***

• Heisner, Leung and Wong also were charged with conspiracies to use the mail to carry out a scheme to fraudulently acquire title to selected properties sold at public auctions, to make and receive payoffs, and to divert money to co-conspirators that would have gone to mortgage holders and others by holding second, private auctions open only to members of the conspiracy.



• The department said that the selected properties were then awarded to the conspirators who submitted the highest bids in the second, private auctions. The private auctions took place at or near the courthouse steps where the public auctions were held. According to court documents, a forfeiture allegation was also included in the charges against Heisner.



• The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at 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.



• Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. Each count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine.



• The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the $1 million statutory maximum.(1)

For the U.S. Justice Department press release, see Three Northern California Real Estate Investors Agree to Plead Guilty to Bid Rigging at Public Foreclosure Auctions (Investigation Has Yielded 20 Plea Agreements to Date).

Go here for other posts & links on bid rigging at foreclosure and other real estate-related auctions.

Go here for links to more from the U.S. Justice Department on bid-rigging prosecutions, generally.

(1) According to the press release, [these] charges are the latest cases filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda Counties, Calif. 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 Field Office and the FBI’s San Francisco office.

Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Field Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm or call the FBI tip line at 415-553-7400.

By the way, by agreeing to plead guilty, these defendants (at least implicitly) have acknowledged that their 'arrangement' at the foreclosure sales was not an innocent, lawful joint bidding endeavor. See Illegal Bid Rigging Racket? Or Mere Innocent 'Joint Bidding' Arrangement?

Sacramento Feds Continue Scoring Guilty Pleas In Northern California Foreclosure Sale Bid Rigging Scams That Violate Sherman Act

From the Office of the U.S. Attorney (Sacramento, California):

• A real estate investor pleaded guilty [] in U.S. District Court in Sacramento, Calif., to conspiring to rig bids and commit mail fraud at public real estate foreclosure auctions held in San Joaquin County, Calif., Christine Varney, Assistant Attorney General of the Department of Justice’s Antitrust Division, and Benjamin B. Wagner, U.S. Attorney for the Eastern District of California, announced.



• Robert Rose, 47, of Danville, pleaded guilty to conspiring with a group of real estate speculators who agreed not to bid against each other at certain public real estate foreclosure auctions in San Joaquin County.(1)



• The primary purpose of the conspiracy was to suppress and restrain competition and to obtain selected real estate offered at San Joaquin County public foreclosure auctions at non-competitive prices, the department said in court papers.



• According to the court documents, after the conspirators’ designated bidder bought a property at a public auction, they would hold a second, private auction, at which each participating conspirator would bid the amount above the public auction price he or she was willing to pay.



• The conspirator who bid the highest amount at the end of the private auction won the property. The difference between the price at the public auction and that at the second auction was the group’s illicit profit, and it was divided among the conspirators in payoffs. According to his plea agreement, Rose participated in the scheme beginning in or about August 2009 until in or about October 2009.(2)

For the U.S. Attorney press release, see California Real Estate Investor Pleads Guilty To Bid Rigging At Public Foreclosure Auctions.

Go here for other posts & links on bid rigging at foreclosure and other real estate-related auctions.

(1) According to the U.S. Attorney press release, Rose pleaded guilty to bid rigging, a violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine. Rose also pleaded guilty to conspiracy to commit mail fraud, which carries a maximum sentence of 30 years in prison and a $1 million fine.

“Perpetrators of schemes like the one charged here do not compete fairly,” U.S. Attorney Wagner stated. “Instead, they muscle out honest bidders who don’t play along. Such schemes not only drive down the price of the auctioned properties, they steal equity from those homeowners trying to weather the financial storm. Rose is the eighth defendant charged in this case. Prosecutions like this one send a clear message to those who may be tempted to cheat at auction: Don’t.”

The U.S. Justice Department urges anyone with information concerning bid rigging or fraud related to real estate foreclosure auctions to contact the Antitrust Division’s San Francisco Office at 415-436-6660 or visit www.justice.gov/atr/contact/newcase.htm, the U.S. Attorney’s Office for the Eastern District of California at 916-554-2700 or the FBI’s Sacramento Division at 916-481-9110.

(2) For indications that these bid-rigging rackets at foreclosure sales appear to be pretty blatant activities all over the country that are often perpetrated with impunity, see:

• Foreclosure Auction Buyer: "Object Is To Get Cheapest Price We Can, Not To Bid Each Other Up" As Intimidation Accusations Flare Up At Courthouse Sales,
• Subtle 'Under The Radar' Foreclosure Sale Bid Rigging Racket, Or Mere Familiarity With Competitors' Business Models?,
• Mysterious lack of bidding wars plagues foreclosure auctions (Among the few bidders at county foreclosure auctions, some nab houses for a dollar more than the minimum bid).

A story earlier this year in the San Francisco Chronicle (FBI looks into bid rigging at courthouse auctions) contains this excerpt describing the observations of one individual who attended one of these auctions:

• A real estate agent who attended some San Francisco auctions in hopes of buying investment property described what he witnessed.
  
  "If you start to bid, there are about five guys who work together and who box you in," said the man, who asked not to be named for fear of retribution. "One guy came up to bid who clearly was not part of that crew. The guys were bidding. At some point, (their ringleader) turned to (the outsider) and said, 'You must really like this property. It must be really important to you.' He had a piece of paper in his hand; he showed it to the guy. The guy nodded OK and then disappeared into the building."

Sacramento Feds Score Another Guilty Plea As 5th Defendant Goes Down In Foreclosure Sale Bid Rigging Conspiracy

In Sacramento, California, the San Jose Mercury News reports:

• Federal prosecutors say a Northern California man has pleaded guilty to conspiring to rig bids at foreclosure auctions in a county among the hardest hit by the real estate bust. The U.S. Attorney's Office for the Eastern District of California says 38-year-old Yama Marifat of Pleasanton pleaded guilty Friday to the conspiracy.

• Prosecutors say Marifat and a group of real estate speculators agreed not to bid against each other at San Joaquin County public foreclosure auctions to keep prices down. The group would then hold a private auction where the property went to the conspirator willing to pay the most above the public price. The speculators would split the difference between the prices at public and private auction as a payoff among themselves.

• Marifat faces up to 10 years in prison for bid rigging and 30 years for mail fraud, plus fines up to at least $2 million. The U.S. Attorney's Office says Marifat is the fifth person to plead guilty in connection with the conspiracy, which was uncovered as part of an ongoing federal investigation into fraud and bid-rigging in real estate auctions in San Joaquin County.(1)

Source: Calif man pleads guilty to foreclosure bid rigging.

For the U.S. Attorney press release, see Real Estate Investor Pleads Guilty to Bid Rigging at Public Foreclosure Auctions.

Go here for other posts & links on bid rigging at foreclosure and other real estate-related auctions.

(1) Anyone with information concerning bid rigging or fraud related to 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, the United States Attorney’s Office for the Eastern District of California at 916-554-2700 or the FBI’s Sacramento Division at 916-481-9110.

More Light Shines On Baltimore City Tax Sale Auctions & Bid-Rigging Allegations

In Baltimore, Maryland, The Huffington Post Investigative Fund reports (story appears in The Baltimore Sun):

• Baltimore City officials on Monday auctioned liens on 12,689 homes and properties whose owners failed to pay local taxes and municipal bills — a probable record and twice as many as in 2006 in the midst of Baltimore's housing bubble.

***

• The city's record tax sale comes as the Justice Department continues a criminal investigation into bid-rigging by some investors. Federal prosecutors allege that the activity compromised as many as two dozen of the tax sales in Baltimore and several Maryland counties. Prosecutors say investors agreed in advance which properties to bid on, improperly reducing the money earned by municipalities. Three investors have pleaded guilty in the case.

***

• Vicki Valentine lost her West Baltimore home that way one raw day in early February. Real estate investors snatched her property over what began with an unpaid city water bill of $362. [...] Valentine was incredulous when the price to keep her property shot past $3,600. Jobless and lacking the savings to pay, she said she could do little to stave off the day of reckoning. [...] Though Valentine had no way to know about it, some investors rigged the 2006 Baltimore tax sale auction that led to her eviction, federal prosecutors alleged in court.

• The roots of that conspiracy run deep, prosecutors said. For years, a handful of Baltimore real estate lawyers and their investment partners quietly dominated Maryland tax sale auctions, with few questions asked about their bidding tactics or collection policies.

***

• Prosecutors went on to charge three men with conspiring to rig bids at 21 auctions in Baltimore and four other jurisdictions, including Montgomery and Prince George's counties between 2002 and 2007. All three have since pleaded guilty.(1) No other charges have been filed.

For the entire story, see City auctions liens on homes; investors can collect.

For another version of the same story, appearing in The Huffungton Post, see The Other Foreclosure Menace (Mortgage Paid Off, Woman Loses Home -- Over a Small Water Bill); and go here for accompanying VIDEO: Tapped Out: How an Unpaid Water Bill Cost a Baltimore Woman Her Home.

Go here for more on bid rigging at real estate-related auctions.

(1) In earlier stories related to this Maryland bid rigging prosecution, see:

• Bid-Rigging Attorney Gets 12 Months In 5-Year, $10 Million Conspiracy At Baltimore-Area Real Estate Tax Lien Auctions,
• Baltimore County lawyer pleads guilty to bid-rigging at tax auctions,
• Baltimore County lawyer to enter guilty plea in tax sale bid,
• Federal judge rules no joint-venture defense,
• Despite ruling, no deal ahead in bid-rigging case in Md.,
• Baltimore County businessman Jack W. Stollof to plead guilty to bid.

Garden State Duo Strike Plea Deal In Advance Of Being Charged In Municipal Tax Lien Auction Bid Rigging Scam; Agree To 'Sing' To Feds In Ongoing Probe

From the U.S. Department of Justice:

• Two financial investors who purchased municipal tax liens at auctions in New Jersey pleaded guilty [February 23] for conspiring to rig bids for the sale of tax liens auctioned by municipalities throughout the state, the Department of Justice announced.



• A felony charge was filed [February 23] in U.S. District Court for the District of New Jersey in Newark, N.J., against Robert W. Stein of Huntington Valley, Pa., and David M. Farber of Cherry Hill, N.J. Under the plea agreements, which are subject to court approval, Stein and Farber have both agreed to cooperate with the department’s ongoing investigation.(1)



• According to the felony charge against Stein, from as early as 1998 until approximately spring 2009, Stein participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey by agreeing to allocate among certain bidders on which liens to bid.



• According to the felony charge against Farber, from as early as the beginning of 2005 through approximately February 2009, Farber also participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey. The department said that both Stein and Farber proceeded to submit bids in accordance with their agreements and purchased tax liens at collusive and non-competitive interest rates.(2)

***

• The department said that the primary purpose of the conspiracies was to suppress and restrain competition to obtain selected municipal tax liens offered at public auctions at non-competitive interest rates.

***

• Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for a Sherman Act violation may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the $1 million statutory maximum.



• Today’s pleas are the result of an ongoing investigation into bid rigging or fraud related to municipal tax lien auctions.(3) On Aug. 24, 2011, Isadore H. May, Richard J. Pisciotta Jr. and William A. Collins each pleaded guilty to one count of bid rigging in connection with their participation in a conspiracy to allocate liens at New Jersey municipal tax lien auctions.

For the U.S. Justice Department press release, see Two Financial Investors Plead Guilty to Bid Rigging at Municipal Tax Lien Auctions in New Jersey.

Go here for other posts & links on bid rigging at foreclosure and other real estate-related auctions.

Go here for links to more from the U.S. Justice Department on bid-rigging prosecutions.

(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).

(2) The DOJ press release describes the nature of the bidding process on municipal tax liens in New Jersey:

• When the owner of real property fails to pay taxes on that property, the municipality in which the property is located may attach a lien for the amount of the unpaid taxes. If the taxes remain unpaid after a waiting period, the lien may be sold at auction. State law requires that investors bid on the interest rate delinquent homeowners will pay upon redemption.
  
  By law, the bid opens at 18 percent interest and, through a competitive bidding process, can be driven down to zero percent. If a lien remains unpaid after a certain period of time, the investor who purchased the lien may begin foreclosure proceedings against the property to which the lien is attached.
  
  According to the court documents, Stein conspired with others not to bid against one another at municipal tax lien auctions in New Jersey. Farber also agreed not bid against certain bidders at tax lien auctions. Because the conspiracies permitted the conspirators to purchase tax liens with limited competition, each conspirator was able to obtain liens which earned a higher interest rate.
  
  Property owners were therefore made to pay higher interest on their tax debts than they would have paid had their liens been purchased in open and honest competition.

(3) The ongoing investigation is being conducted by the Antitrust Division’s New York Field Office and the FBI’s Atlantic City, N.J., office. Anyone with information concerning bid rigging or fraud related to municipal tax lien auctions should contact the Antitrust Division’s New York Field Office at 212-335-8000, visit www.justice.gov/atr/contact/newcase.htm or contact the Atlantic City Resident Agency of the FBI at 609-677-6400.

Another One Bites The Dust As Feds Continue Clean-Up In Probe Into Northern California Foreclosure Sale Bid Rigging Racket

In Sacramento, California, the Central Valley Business Times reports:

• A Lodi real estate investor pleaded guilty Friday in U.S. District Court in Sacramento to conspiring to rig bids and commit mail fraud at public real estate foreclosure auctions held in San Joaquin County.



• Wiley Chandler, 47, of Lodi, pleaded guilty to conspiring with a group of real estate speculators who agreed to rig bids and commit mail fraud when purchasing selected properties at public real estate foreclosure auctions in San Joaquin County, says U.S. Attorney Benjamin Wagner.



• The goals of the conspiracies were to suppress and restrain competition, to fraudulently obtain selected real estate at noncompetitive prices and to divert money to coconspirators that would have gone to the beneficiaries, the department said in court papers, says Sharis Pozen, acting assistant attorney general of the Department of Justice’s Antitrust Division.

***

• “Public auctions are meant for the public, not for an elite group conspiring together for their own profit,” says Mr. Wagner. Specifically, Mr. Chandler pleaded guilty to bid rigging, a violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either of those amounts is greater than the statutory maximum fine.

For more, see Another guilty plea in massive Central Valley foreclosure fraud (Lodi man is tenth to plead guilty to bid rigging and fraud; ‘Public auctions are meant for the public, not for an elite group conspiring together’).

For the U.S. Department of Justice press release, see Two Financial Investors Plead Guilty to Bid Rigging at Municipal Tax Lien Auctions in New Jersey.

Go here for other posts & links on bid rigging at foreclosure and other real estate-related auctions.

Go here for links to more from the U.S. Justice Department on bid-rigging prosecutions.

Real Estate Investor Agrees To Pay $47K+ To Settle Civil Charges Of Foreclosure Auction Bid Rigging Brought By NC AG

From the Office of the North Carolina Attorney General:

• A Virginia man and his company are barred from rigging bids on public auctions and must pay civil penalties and consumer refunds for trying to fix foreclosure sales of properties in Durham and Mecklenburg counties, Attorney General Roy Cooper announced [].

***

• The Attorney General alleges that Bruce Olvin McBarnette of Sterling, Virginia and his company, Summit Connection LLC, entered into agreements to rig bids on four foreclosed properties being auctioned in Durham County in 2009 and 2010:
  
  McBarnette told a local pastor that he would continue bidding against her for property her church wanted to purchase unless she paid him $1,200.
  
  A man trying to purchase a home for his mother paid McBarnette $800 after McBarnette told him he would lose the auction unless he paid the money.
  
  A pastor who wanted to help revitalize his church’s neighborhood paid McBarnette a total of $2,900 so that his company wouldn’t keep bidding on two properties.

• In seven other property auctions, Cooper contends that McBarnette attempted to get competing bidders to pay him not to bid against them but the bidders turned him down. Four of those auctions involved Durham County properties, and three involved Mecklenburg County properties.

• Wake County Superior Court Judge Donald Stephens [] approved Cooper’s request for a consent judgment against McBarnette and Summit Connection. Under the judgment, McBarnette and Summit Connection must pay $47,400.(1)

For the NC AG press release, see Attorney General stops scheme to rig bids on foreclosure auctions (Company sought to illegally manipulate sales of Durham, Mecklenburg properties).

(1) This guy appears to have gotten off pretty easy. Compare this case with another North Carolina case where the Feds brought criminal charges against a foreclosure auction bid rigging racket, as reported in a recent U.S. Department of Justice press release: North Carolina Real Estate Speculator Pleads Guilty to Bid Rigging in Real Estate Foreclosure Auctions ("Anyone with information concerning bid rigging or fraud related to real estate foreclosure auctions should contact the Antitrust Division’s Atlanta Field Office at 404-331-7100 or visit www.justice.gov/atr/contact/newcase.htm").

Go here for other posts & links on bid rigging at foreclosure and tax sale auctions.

Antitrust Feds Score 27th Guilty Plea In Ongoing Probe Targeting R/E Operators Running N. California Foreclosure Sale Bid-Rigging Rackets

From the U.S. Department of Justice (Washington, D.C.):

• A Northern California real estate investor has agreed to plead guilty for his role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.
  
  Felony charges were filed today in the U.S. District Court for the Northern District of California in San Francisco against Gilbert Chung of Burlingame, Calif. Chung is the 27th individual to plead guilty or agree to plead guilty as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.
  
  According to court documents, Chung conspired with others not to bid against one another, but instead to designate a winning bidder to obtain selected properties at public real estate foreclosure auctions in San Francisco and San Mateo counties, Calif. Chung was also charged with conspiring to use the mail to carry out schemes to fraudulently acquire title to selected properties sold at public auctions, to make and receive payoffs and to divert to co-conspirators money that would have otherwise gone to mortgage holders and others.
  
  The department said Chung conspired with others to rig bids and commit mail fraud at public real estate foreclosure auctions in San Francisco and San Mateo counties beginning as early as January 2010 and continuing until about December 2010.
  
  “The conspirators went to great lengths to suppress competition and prices at these foreclosure auctions,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The division will continue to vigorously enforce the antitrust laws and to prosecute those who violate them at the expense of distressed homeowners.”
  
  The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at San Francisco and San Mateo County public foreclosure auctions at non-competitive 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.
  
  “Today’s charges are another example of our resolve to bring to justice those who engaged in fraudulent bid rigging and anticompetitive practices at foreclosure auctions,” said FBI Special Agent in Charge David J. Johnson of the San Francisco Field Office. “We continue our partnership with the Antitrust Division in aggressively pursuing individuals who participate in these criminal acts.”
  
  A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.
  
  The charges today are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties, Calif.
  
  These investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Field Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm or call the FBI tip line at 415-553-7400.

For the Justice Department press release, see Northern California Real Estate Investor Agrees to Plead Guilty to Bid Rigging at Public Foreclosure Auctions (Investigation Has Yielded 27 Plea Agreements to Date).

Another Investor Falls In Ongoing Mobile Federal Probe Into Foreclosure Sale Bid Rigging

From the U.S. Department of Justice:

• A Mobile, Ala., real estate investor has agreed to plead guilty [] for his role in a conspiracy to rig bids and commit mail fraud at public real estate foreclosure auctions in southern Alabama, the Department of Justice announced.



• Charges were filed [] in U.S. District Court for the Southern District of Alabama in Mobile against Bobby Threlkeld Jr. Threlkeld was charged with one count of bid rigging to obtain selected real estate at foreclosure auctions and one count of conspiracy to commit mail fraud.



• The department said that Threlkeld participated in a conspiracy to rig bids by agreeing to refrain from bidding against other investors at public real estate foreclosure auctions in Mobile County and its surrounding areas.



• The department said that the primary purpose of the conspiracy was to suppress and restrain competition and to make and receive payoffs in order to obtain selected real estate offered at 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.

***

• [These] charges are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in southern Alabama. In addition to [these] charges, on Sept. 15, 2011, Allen K. French, Harold H. Buchman and Buchman’s company, M & B Builders LLC, were each charged in U.S. District Court for the Southern District of Alabama with one count of bid rigging to obtain selected real estate in southern Alabama at foreclosure auctions.



• On the same day, M & B Builders was also charged with one count of conspiracy to commit mail fraud. On Oct. 14, 2011, French, Buchman and M & B Builders pleaded guilty to the charges.



• 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 today’s charges are part of the department’s ongoing effort to combat this conduct and restore competition to public auctions.(1)

For the U.S. Justice Department press release, see Alabama Real Estate Investor Agrees to Plead Guilty to Conspiracy to Rig Bids for the Purchase of Real Estate at Public Foreclosure Auctions.

(1) The investigation into fraud and bid rigging at certain real estate foreclosure auctions in Southern Alabama is being conducted by the Antitrust Division’s Atlanta Field Office and the FBI’s Mobile Field Office, with the assistance of the U.S. Attorney’s Office for the Southern District of Alabama. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s Atlanta Field Office at 404-331-7100 or visit www.justice.gov/atr/contact/newcase.htm.

Antitrust Feds Pre-Charging Negotiations Lead To Suspect Take-Down In NJ Tax Lien Bid Rigging Probe; Plea Deal Filed Simultaneously w/ Charging Docs

From the U.S. Department of Justice:

• A former executive of a New York-based tax liens company who supervised the purchasing of municipal tax liens at auctions in New Jersey pleaded guilty today [April 17, 2012] for his role in a conspiracy to rig bids for the sale of tax liens auctioned by municipalities throughout the state, the Department of Justice announced.
• A felony charge was filed today [April 17, 2012] in the U.S. District Court for the District of New Jersey in Newark, N.J., against former Vice President Stephen E. Hruby, of Hainesport, N.J. Under the plea agreement, which is subject to court approval, Hruby has agreed to cooperate with the department’s ongoing investigation.
• According to the felony charge, from at least as early as December 2002 until approximately February 2009, Hruby participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey by agreeing to, and directing others to, allocate among certain bidders which liens each would bid on. Hruby, and those under his supervision, proceeded to submit bids in accordance with their agreements and purchased tax liens at collusive and non-competitive interest rates.

***

• According to the court documents, Hruby conspired with others not to bid against one another at municipal tax lien auctions in New Jersey. Because the conspiracy permitted the conspirators to purchase tax liens with limited competition, each conspirator was able to obtain liens which earned a higher interest rate. Property owners were therefore made to pay higher interest on their tax debts than they would have paid had their liens been purchased in open and honest competition.

For the Justice Department press release, see Former Executive of New York-Based Tax Liens Company Pleads Guilty to Bid Rigging at Municipal Tax Lien Auctions in New Jersey.

(1) According to the press release, a violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for a Sherman Act violation may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the statutory maximum.

Hruby’s plea is the seventh guilty plea resulting from an ongoing investigation into bid rigging or fraud related to municipal tax lien auctions, the press release states. Others include Isadore H. May, Richard J. Pisciotta Jr. and William A. Collins, each pleading guilty to one count of bid rigging in connection with their participation in a conspiracy to allocate liens at New Jersey auctions on Aug. 24, 2011. Going down next were Robert W. Stein and David M. Farber, who each pleaded guilty to one count of bid rigging on Feb. 23, 2012. On March 27, 2012, Robert E. Rothman pleaded guilty to one count of bid rigging in connection with his participation in this conspiracy.

California Man Cops Plea For Role In Bid-Rigging At Foreclosure Sales

In Sacramento, California, The Stockton Record reports:

• A 43-year-old Stockton man pleaded guilty Friday to rigging bids at public real estate auctions in San Joaquin County over a six-month period in 2009. Anthony B. Ghio, 43, admitted in U.S. District Court that he conspired with a group of real estate speculators who agreed not to bid against each other at selected foreclosure auctions as a way to suppress competition, thus keeping prices artificially low.(1)

• According to court documents:
  
  (1) After the conspirators' designated bidder bought a property at a public auction, there would be a second, private auction.
  
  (2) Each participant would then submit higher bids at the private auction.
  
  (3) The conspirator who bid the highest amount in the second auction won the property. The difference between the noncompetitive price at the public auction and the winning bid in the second auction was the group's illicit profit - and that amount was divided among them.

For the story, see Stocktonian admits to bid-rigging land scheme (Man faces 10 years in prison, $1 million fine).

For the U.S. Attorney (Sacramento, California) press release, see California Real Estate Executive Pleads Guilty to Bid Rigging.

Go here for other posts on foreclosure sale bid-rigging.

(1) Ghio is charged with bid rigging, a violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine.

Attorney, Two Law Partners Admit To Bid-Rigging MD Real Estate Tax Lien Sales; Dodge Criminal Charges By Winning "Race To the Prosecutor's Office"

The Center for Public Integrity reports:

• A key witness in a federal probe of corruption in Maryland property tax-lien sales has stated under oath that he rigged bids for years while representing a Florida bank and other firms that bought liens at annual sales auctions, newly unsealed court records show.

• Baltimore real estate attorney John Reiff said he and two law partners helped fix bids for the purchase of “large numbers” of property tax debts, called tax liens, sold by tax assessors at auctions in Baltimore and several other Maryland counties between 2003 and 2007, according to court filings made public for the first time last month.

***

• An investigation published in December by the Center for Public Integrity showed how lien buyers can tack on double-digit interest rates, legal fees and other costs that can add thousands of dollars to a homeowner’s bill. In some states, lien holders can seize homes from those who fail to pay. The bid rigging cost the city of Baltimore and surrounding counties money by artificially holding down bids, local officials say, although they could not determine how much.

***

• Though the tax-lien industry has long been controversial, the Baltimore lawyer’s sworn declaration appears to be the first to mention a bank, or a tax-lien portfolio manager, in connection with allegations of criminal conduct in the bidding process.

• Reiff stated that a firm formed with his law partners acted to “suppress competition for tax liens by refraining from full competitive bidding.” [...] U.S. District Judge J. Frederick Motz in Baltimore unsealed Reiff’s declaration and some other records at the request of the Huffington Post Investigative Fund, now part of the Center for Public Integrity.

***

• Reiff and his partners, Anthony DeLaurentis and Richard Turer, were one of three investment groups that participated in the five-year scheme to dominate the tax lien auctions, according to prosecutors.

• Three other participants have pleaded guilty to bid rigging in the case. In May, Baltimore County attorney Harvey M. Nusbaum, 73, was sentenced to a year-and-a-day in prison and an $800,000 fine. His partner, Jack W. Stollof, 75, was sentenced to 12 months of house arrest and an $800,000 fine. A third man, Steven L. Berman , 53, received two years probation and a $750,000 fine.

• “Bid rigging is typically a clandestine effort made to line the pockets of unscrupulous businessmen at the expense of unsuspecting consumers — in this case, at the expense of homeowners and county and city governments,” Justice Department prosecutors wrote in a sentencing memorandum about Nusbaum.

• “In principle, bid rigging is no different from any other common theft of money or property. It is criminal fraud, pure and simple.”

• The unsealed records describe in detail how the well-financed investment groups illegally dominated the process in Maryland through collusion — and how they made millions of dollars off homeowners as a result. The three groups, according to Reiff, decided in advance which liens each would bid on.

***

• Reiff has been a key witness in the federal probe that has resulted in three convictions. He and his two partners cooperated with the government and were not charged.(1)

• In many cases, homeowners who owed only a few hundred dollars in taxes or municipal bills saw their debt soar into thousands because of the fees and interest. A Baltimore woman lost the home her family had owned for nearly three decades over what began as an unpaid water bill of $362, for instance.

For more, see Witness Says He Rigged Bids in Property Tax Lien Auctions in Maryland.

Go here for the recently-unsealed court filings referred to in this story.

Go here for other posts & links on bid rigging at foreclosure and other real estate-related auctions.

(1) This is another example of how scammers in criminal conspiracies can buy their way out of jail time (and, in this case, can avoid prosecution altogether) by winning the "race to the prosecutor's office" (possibly better described as the "rat-race to the prosecutor's office"), where once they learn they are the subject of a probe, they can run to the prosecutor's office (with the best criminal defense attorney they can afford in tow) and start ratting out their friends and colleagues in exchange for the best deal available. See United States v. Moody, 206 F.3d 609, 617 (6th Cir. 2000) (Wiseman, J., concurring) for one Federal judge's observation, made in the context of drug conspiracy cases, involving the so-called "race to the courthouse/prosecutor's office" which seems equally suited to other types of major, multi-defendant felony cases:

• In practical terms, drug conspiracy cases have become a race to the courthouse. 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.

Antitrust Feds Score Two More Guilty Pleas In Probe Into Foreclosure Sale Bid Rigging Rackets

From the U.S. Department of Justice (Washington, D.C.):

• Two Alabama real estate investors and their company pleaded guilty [] for their roles in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in southern Alabama, the Department of Justice announced.
  
  Robert M. Brannon, of Laurel, Miss.; his son, Jason R. Brannon, of Mobile, Ala.; and their Mobile-based company, J & R Properties LLC, pleaded guilty [] to an indictment originally returned on June 28, 2012 in the U.S. District Court for the Southern District of Alabama charging each of them with one count of bid rigging and one count of conspiracy to commit mail fraud.
  
  According to court documents, the Brannons and their company conspired with others not to bid against one another at public real estate foreclosure auctions in southern Alabama. After a designated bidder bought a property at a public auction, which typically takes place at the county courthouse, the conspirators would generally hold a secret, second auction, at which each participant would bid the amount above the public auction price he or she was willing to pay. The highest bidder at the secret, second auction won the property.
  
  The Brannons and their company were also charged with conspiring to use the U.S. mail to carry out a fraudulent scheme to acquire title to rigged foreclosure properties sold at public auctions at artificially suppressed prices, to make and receive payoffs to co-conspirators, and to cause financial institutions, homeowners and others with a legal interest in rigged foreclosure properties to receive less than the competitive price for the properties. The Brannons and their company are charged with participating in the bid-rigging and mail fraud conspiracies from as early as October 2004 until at least August 2007.
  
  “The conspirators subverted the competitive bidding process by engaging in a collusive scheme to artificially depress prices at real estate foreclosure auctions and to defraud financial institutions and homeowners out of money and property,” said Renata B. Hesse, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.(1)

For the Justice Department press release, see Two Alabama Real Estate Investors and Their Company Plead Guilty to Conspiracies to Rig Bids and Commit Mail Fraud for the Purchase of Real Estate at Public Foreclosure Auctions (Investigation Has Yielded 10 Guilty Pleas to Date).

(1) Real estate operators and others who have gotten themselves pinched on charges alleging participation in an illegal bid rigging scam at a public auction may wish to consider whether to mount a defense before deciding to 'race to the prosecutor's office' and spill their guts about the racket (and, in the process, throwing their co-conspirators under the bus in an attempt to beat the rap, or at least reduce any anticipated prison sentence). For more, see:

• Illegal Bid Rigging Racket? Or Mere Innocent 'Joint Bidding' Arrangement?;
• Accused F'closure Sale Bid-Riggers Dodge Bullet As Rocky Mountain Supremes Uphold 'Joint Bidding' Defense In Civil Suit Brought By Foreclosed Owner.