Escrow Officer Acts As Straw Buyer

On September 1, 2011 an indictment was issued naming four
co–defendants. Each of them are charged with one count of conspiracy to commit bank fraud, eighteen counts of false statement to financial institutions and one count of conspiracy to commit money laundering for a total of 20 counts. Their scheme involved the use of straw buyers, one of them being the escrow officer herself.

The indictment alleges the four defendants, William Michael Naponelli, Walter Scott Fruit, Sandra Jackson and Brian Atwood, "…conspired, confederated and agreed with each other to knowingly engage in and execute an ongoing scheme to defraud a financial institution, and to obtain money, funds, credits or other property owned by or under the custody or control of a federally insured financial institution by means of false or fraudulent pretenses or representations…"

The investigation leading up to the indictment was conducted by the IRS Criminal Division and the FBI. The indictment alleges Naponelli and Fruit purchased properties in the names of several limited liability companies, wherein they were typically members. The pair would then sell the properties for a profit by recruiting straw buyers to lend their credit and purchase the properties at inflated amounts. The indictment alleges Naponelli recruited most of the straw buyers and promised them they would not have to provide any money for the transactions, which included the down payment and monthly payments. At one point the escrow officer, Sandra Jackson, allegedly agreed to act as a straw buyer.

Jackson, who acted as the escrow officer on most of the transactions, allegedly prepared HUD–1 Settlement Statements which falsely represented the required funds to close remitted by the buyers. According to the indictment the funds to close were generally provided by either Naponelli or Fruit. In some cases the remitter name on the cashier's checks indicated the name of the straw buyer, but the name was misspelled.

In some of the files a fictitious seller carry–back loan was created to assist the buyers in qualifying for the loans without having to come in with an actual down payment. The indictment lists a total of 19 transactions containing these characteristics resulting in $5.85 million in total loans. The document also reports the lenders suffered a total of $3.9 million dollars in losses as a result of this scheme.

The indictment describes the manner and means of the conspiracy as, "The defendants knew that the money and funds received from the fraudulent loan proceeds relating to these properties represented the proceeds of an unlawful activity…the defendants knowingly conducted and knowingly caused to be conducted monetary transactions with these funds knowing the money and funds received from the sale of residential properties represented criminally derived property from unlawful activities."

Moral Of The Story
If found guilty, the defendants in this case face hefty fines and prison terms. A conviction for conspiracy to commit bank fraud and false statements to influence a financial institution can result in a maximum fine of $1,000,000, 30 years in prison or both. A conviction for conspiracy to commit transactional money laundering carries a maximum penalty of 10 years in prison and a $250,000 fine. Keep in mind none of those named above have been found guilty of the charges. The indictment only provides the method for them to be charged with the alleged crimes.

If It's Not One Thing…It's Your Brother!

This is a real estate fraud/identity theft case brought by plaintiffs Darryl Dumas ("Darryl") and Darryl Dumas as Trustee of the Dumas Revocable Living Trust Agreement Dated February 7, 2001 against Darryl's brother Derrick Dumas ("Derrick"), among others, concerning real property located at 1875 Paradise Drive, Los Angeles, Calif. 90025 ("Subject Property"). On January 12, 1994, Darryl purchased the property by Grant Deed. In 1998, Darryl moved out and began renting out the subject property. In April of 2001, Darryl transferred title to the property to his trust.

In 1999, Derrick started a mortgage brokerage company known as Countywide Loans. In February 2008, Derrick indicated he could arrange for Darryl to obtain a line of credit with Chase, secured by the subject property for up to $500,000 on favorable terms. Darryl was interested in an increased line of credit to have the flexibility to make investments when the opportunities arose. Darryl agreed to apply for the Chase secured equity credit line and allegedly provided his brother, Derrick, with his personal financial information in order to facilitate the application.

Derrick was out of the country from June through November of 2008. In early November 2008, Darryl's other brother, David, informed him that Derrick had obtained a loan against his home under his name without his knowledge or consent. Darryl then asked David to check the records for the subject property to see if Derrick might have done something similar to him. A few days later, David advised Darryl there was a $350,000 loan against the subject property in favor of a lender named Overland Direct. Derrick's company, Countywide, had originated the loan and sold it to Overland Direct. Our Company insured this transaction and issued a $350,000 lender's policy to Overland Direct.

Derrick returned to the United States in the middle of November 2008. On November 16, 2008, Darryl confronted him at their parents' home. Derrick confessed that he had stolen Darryl's identity, forged his signatures on the loan documents to take out a loan from Overland Direct against the subject property and kept the loan proceeds.

In February 2009, Overland Direct's $350,000 note went into default and the loan went into foreclosure. Overland Direct received notification from Darryl, however, that his signature was forged and that he never applied for the loan in question. Based on this information, Overland Direct submitted a claim to Our Company. Our Company ended up defending our insured lender in a suit filed by Darryl as well as ultimately incurring a policy limits loss ($350,000) plus expenses on this claim.

The notaries of the various documents involved in this fraud were Dante C. Gumiran (Commission No. 1638844, CA) and Caroline P. Diaz (Commission No. 1522651, CA). Both Gumiran and Diaz were employed by Derrick at Countywide Loans. Gumiran signed a declaration that his boss, Derrick, instructed him to notarize the relevant documents outside the presence of the purported signer, Darryl. Diaz alleges in her declaration that she did not notarize the documents at all and that her signature is a forgery. She insinuates that someone used her notary stamp, which she left at her desk at Countywide Loans.

This matter has been reported to law enforcement and we are following up to ensure the notaries have been reported to the notary board in California for further investigation. In addition, we are pursuing Derrick in a civil action to recoup our losses.

By The Way
We have two other claims involving Derrick forging borrower's names, which are still in the midst of investigation and will result in further litigation. As a result, the names of the parties (with the exception of the notaries) have been changed.

Big Brother IS Watching

As you know, Our Company has a comprehensive audit program in place under the direction of Liz Dantin, chief audit officer. The Audit Services Department regularly reviews its audit program and looks for ways to improve. As a result, in February 2011, the Department implemented a new automated audit system. Now, in addition to the field direct office audits they perform, Audit Services has added the SAFE (Software Auditing for the Fidelity Enterprise) system. Read on to learn how the system works and its benefits.

SAFE receives real–time data from our escrow processing systems to analyze escrow files for irregularities within the file/ledger. The system searches for a pre–determined set of detections, which might be an indication something occurred in the file which might be a violation of Company Policy and Procedure. Examples of SAFE detections are: an employee's name on a disbursement ledger, dormant funds being disbursed to individuals who are not party to the transaction, inappropriate transfer of funds from one file to another, etc. When an instance is detected, it is posted to a dashboard which alerts the Audit Services Department. This allows an auditor to access and review the file further to determine if the detection is truly an issue.

Most of the time the settlement agent has no idea the file is being reviewed since Audit Services accesses the system remotely. Usually Audit Services clears the detection after reviewing the file. Occasionally, however, they need additional documentation or an explanation from the settlement agent. The system currently runs nine transactional tests looking for detections. In addition, group tests are in development, which will look at specific data in sets; i.e. the same party receiving disbursements on many files, same property address being closed simultaneously or concurrently, etc.

Since the system has gone live, some procedural issues have been uncovered. Some offices are not following newly implemented procedures directed by National Escrow Administration or have failed to rectify findings previously reported in a field audit. The Audit Services Department is able to confirm updated procedures are not being implemented and SAFE detects when an old procedure is still in place. In some cases, SAFE has found issues which necessitated escalating the scheduled date of an operation's field audit. The detection is referred to the Direct Audit Team for review and an immediate audit might be performed. One actual defalcation has been found through the use of SAFE, along with several escrow funds violations.

SAFE has already proved to be a huge success. As mentioned above, it has detected one defalcation. The system identified checks payable to an employee on multiple disbursement ledgers. DeeDee Pedersen, the SAFE auditor, contacted the employee for more information and the employee suddenly resigned. A full review revealed the employee had cut 17 checks, payable to herself, over the past year and a half. It was because of Audit Services' SAFE system this thief was discovered.

Additionally, the system has identified another violation of Company Policy and Procedure. As described earlier, SAFE matches payees found on a disbursement ledger against Our Company's payroll system. The system has uncovered several instances where our employees have been paid directly out of the file for an accommodation signing or their notary fees. Accommodation signing and notary fees must be paid to the operation the notary works for, to ensure the payment is processed through payroll and all income taxes are properly withheld. Payments cannot be made payable to the employee through the escrow file.

The SAFE Audit Team reports directly to the chief audit officer and thus, the Audit Committee of the board of directors. Any significant issues noted are compiled and presented to the Audit Committee at quarterly meetings and are used by the Direct Audit Teams to assist in field audit testing, as well as scheduling of audits.

Moral Of The Story
One of Our Company's six precepts is the Highest Standard of Conduct. Our precepts are not simply something we hang on the wall; but the core of Our Company. Our employees are expected to follow Company Policy and Procedure and the Audit Services Department helps ensure this happens. By adding the SAFE system to their program they are able to quickly identify operations which are not in compliance and quickly identify defalcations.