Nick Fury’s Howling Commandos have struck another blow against alleged criminal disorder in the great City of New York. Led by Manhattan District Attorney Cyrus Vance, Jr., prosecutors believe that Abacus Federal Savings Bank and eleven former employees were the central platform behind the sale of fraudulent loans to Fannie Mae. Not merely one or two loans, prosecutors contend these men and women perpetrated a false document mortgage fraud scheme involving sales in the hundreds of millions of dollars. Beyond the eleven individuals arrested in this scheme and the indictment of Abacus Bank, eight other former employees have already pleaded guilty to various felony offenses.
Among other crimes, the 184 count indictment against Abacus Bank and her eleven former employees charges Residential Mortgage Fraud in the First Degree (New York Penal Law 187.25), Residential Mortgage Fraud in the Second Degree (New York Penal Law 187.20), Grand Larceny in the First Degree (New York Penal Law 155.42, Second Degree Grand Larceny (New York Penal Law 155.40) and Falsifying Business Records in the First Degree (New York Penal Law 175.10). The most serious of these offenses, NY PL 187.25 and NY PL 155.42, are “B” felonies that require a minimum of one to three and a maximum of eight and one third to twenty five years in prison post conviction. The “C” felonies of NY PL 155.40 and NY PL 187.20 do not have mandatory terms of incarceration for first time felony offenders, but carry a maximum sentence of five to fifteen years in prison. NY PL 175.10 is an “E” felony with a potential punishment of up to four years in state custody.
If prosecutors are correct in their allegations, the defendants involved in this roughly five year long mortgage fraud scam were not low end employees. In fact, the New York County District Attorney’s Office believes that those involved were former senior managers and former employees who worked in various capacities for Abacus Bank’s lending business.
Law enforcement believes that both managers and employees of Abacus bank regularly and systematically falsified residential mortgage applications.This was done in order to ensure that commissions and fees were earned by getting unqualified borrowers loans. Abacus Bank then sold these loans to Fannie Mae. Fannie Mae then repackaged the fraudulent mortgages into mortgage-backed securities that were sold.
As stated in the press release:
Charged in the indictment is YIU WAH WONG, who served as the Bank’s Chief Credit Officer, Vice President, and Underwriting Supervisor. WONG was the most senior Loan Department manager and reported directly to the Bank’s CEO. Also charged in the indictment is WAI HUNG “RAYMOND” TAM, the Loan Origination Supervisor. According to the indictment, these ABACUS managers trained lower level employees that the accuracy of loan application information was immaterial; what mattered was making sure that borrowers were able to obtain Fannie Mae-backed mortgages. Managers also encouraged loan officers and processors to be discreet by making sure that the falsified information would be believable in the eyes of the Bank’s regulator, the Office of the Comptroller of the Currency, as well as Fannie Mae.
ABACUS loan originators, also called loan officers, are accused of regularly instructing prospective borrowers to make misrepresentations in their loan applications and often authored falsified documents themselves. According to the indictment, originators coached borrowers to inflate their income, assets, and job titles, and to falsify Verification of Employment forms. Loan officers are charged with creating false gift letters to obscure the source of the borrowers’ down payments and disguise borrowers’ liabilities as assets. The loan originators charged in the indictment were: WEN FANG “FANNY” WANG, YING CHUAN “SHELLEY” WANG, JIE QIONG “MICHELLE” NAN, CHI FUNG “DANNY” LAU, and PHOEBE LEE. Loan officers QIBIN “KEN” YU, RUO LAN “JULIE” CHEN, LIEN “LILY” QUACH, XIAOMIN “JANE” HUANG, and YIM “KATY” CHENG all previously pleaded guilty to felonies for their participation in this scheme. Loan officer JIN HUA “JENNY” ZHANG has been charged by felony complaint with Falsifying Business Records in the First Degree and related charges.
Loan processors, including defendants WAI CHING “ALICE” WONG and YUK YIN “LORETTA” LAM CHENG, are accused of helping originators concoct inflated incomes for borrowers. Specifically, processors manipulated loan origination software in order to calculate how much income borrowers needed to show in order to qualify for loans. According to the indictment, processors also facilitated the falsification of borrowers’ employment information by providing blank Verification of Employment forms to originators and loan applicants instead of mailing the forms directly to employers. Processor MICHELLE WONG LI previously pleaded guilty to Falsifying Business Records in the First Degree in connection with her conduct.
According to today’s indictment, loan underwriters approved loans they knew contained falsehoods, and knowingly failed to conduct adequate scrutiny of obviously false documents. Former underwriters VICTORIA TSUI and YI YI ZHAO were charged in the indictment. ANDY CHEN, who served as an underwriter, previously pleaded guilty to Falsifying Business Records in the First Degree. Although not noted above, District Attorney Vance made it very clear in his press release that fair dealing is a necessity in the banking business and that the Manhattan District Attorney’s Office will not sit idly by if crimes are perpetrated. Compounding matters for the defendants, prosecutors have clearly spent time and man power during this two and one half year investigation that culminated in the indictment. What defense each of the accused put forth will certainly be interesting. For example, did all of the defendants benefit from the alleged scam, ie, commit a larceny? Did anyone falsify records at the request of a supervisor, without a benefit, in the regular course of their general responsibilities? Does this satisfy the statutory defense to Falsifying Business Records? Even if so, what about the more serious crimes? If documents were signed, drafted and forwarded electronically, was there open access to data or individual logins? While some of the defendants previously pleaded to various crimes, can any of these defendants mitigate their conduct? While not a true or complete defense, was there duress or threat of termination should they not comply with a superior’s demand? Is there any other conduct that law enforcement is not aware of? As I am only speculating without information beyond the press release, I have no idea what defenses will be put forth. Having said that, potential defenses, whether based in evidence or mitigation, may certainly exist.
To learn about each of the crimes above – Grand Larceny, Residential Mortgage Fraud and Falsifying Business Records, please follow the highlighted links. There you will find easy to ready and informative materials about these crimes. Further, information is available on both of our websites and blogs listed below. These resources address both statutes and legal decisions that are the basis of the New York Penal Law.
Saland Law PC is a New York criminal defense firm founded by two former Manhattan prosecutors who served under Robert Morgenthau. The New York criminal defense attorneys at Saland Law PC represent those accused of white collar and theft crimes throughout New York City and the region.