Double Standard For Federal Prosecution Of Bank Fraud

July 28, 2014

Funny, isn't it? You know, the way double standards work in our society. Take, for example, virtually identical crimes or torts.

In the first set of facts, you have a bunch of idiots who engaged in some silly-ass bit of financial fraud involving tens of thousands or hundreds of thousands of dollars. They get caught. The prosecutors walk out before the cameras and talk tough about crime and punishment, and after all the pictures are taken and the quotes written, we are left with that last warning about how a message has been sent. And, yes, they promise, we're sending these folks to jail!

In the second set of facts, you have a bunch of educated, intelligent Masters of the Universe who engaged in sophisticated fraud involving billions and trillions of dollars. Their names, however, never quite make it into a civil or criminal caption. It's always about the institution -- as if banks and brokerage firms are run by robots. The prosecutors walk out before the cameras and talk tough about crime and punishment, and, yet again, after all the pictures are taken and the quotes written, we are left with that last warning about how another message has been sent.  In this second version of justice, however, no human being seems to get named in any Complaint caption and no one ever seems to go to jail. It's about a check, albeit a large one, but, still, it comes down to nothing more than a number on a piece of paper, and the tab usually gets paid by shareholders of a public company.

Consider today's BrokeAndBroker.com Blog in which we present a bit of alleged banking fraud involving what I call those "first set of facts" small fry.

83 Cathedral Avenue

According to federal prosecutors, in 2003, lawyer Nicholas Pellegrini sold 83 Cathedral Avenue, Hempstead, NY (a residential house) to a relative of Sofia Atias; and, thereafter, in 2007, the relative deeded the property to both himself and Sofia Atias. About three months after the joint deeding, Sofia Atias signed off on a $636,000 mortgage for the property from Countrywide FSB (which was subsequently acquired by Bank of America) and a $79,500 line of credit from the Bank (Countrywide FSB and Bank of America collectively referred to as the "Bank"). READ FULL-TEXT INDICTMENTUnited States of America v. Sofia Atias, Joseph Atias, Nicholas A. Pellegrini, and Paual Berckhoff a/k/a "Paula Pellegrini"(EDNY, CR-14-403, July 17, 2014).

NOTE:The charges in the indictment are merely allegations, and the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

Kaboom!!!

Now enter the Great Recession replete with a real estate crash and whatever else you wish to toss into the mix of the crappy economic picture from 2008 through 2011. By 2011, Sofia Atias's mortgage and line of credit were in arrears and the Bank had begun foreclosure proceedings.

A Ray of Hope

Sometime around June 21, 2011, the Sacred Heart Academy, an all-girls Catholic high school, located at 47 Cathedral Avenue, Hempstead, NY, wrote to Sofia Atias expressing its interest in purchasing 83 Cathedral Avenue. The school wanted to build an athletic field and was looking to acquire property adjacent to its campus. According to federal prosecutors, for the next several months, Sophia and Joseph Atias (husband and wife), and Nicholas Pellegrini negotiated the sale of the property to the school for $925,000.

The Short Of It

Around October 21, 2011, Sofia Atias wrote to the Bank requesting its agreement to a short sale of 83 Cathedral Avenue. Allegedly, she informed the Bank that she had no ability to repay the mortgage/line of credit debit balances. The Indictment asserts, however, that she "well knew and believed, Sacred Heart Academy had offered to pay $925,00 for the real property, thus making a short sale unnecessary."

The Straw-woman

In furtherance of the proposed short sale, Sofia Atias and Paula Berckhoff (the wife of Nicholas Pellegrini and also known as Paula Pellegrini) purportedly submitted a contract, presenting the proposed transaction as "arms-length" and involving the Jefferson Property Corp.; and also presenting a sales contract to buyer Paula Berckhoff for $385,000, which eventually increased to $480,000. The Indictment alleges that, in fact, Paula Berkchoff was the secretary and treasurer of Jefferson Real Property Corp. and that she was, in effect, operating as a straw buyer for Sofia Atias.

The Indictment asserts that pursuant to their representation concerning the sale of 83 Cathedral Avenue, Atias and Berckhoff represented that
  • neither would receive any transaction proceeds,
  • the contemplated sale was not "flipping" or "straw buying," and
  • they had, in essence, disclosed all material facts to the Bank.
Not Adding Up

Around March 19, 2012, the Indictment alleges that Sofia and Joseph Atias, Nicholas A. Pellegrini, and Paula Berckhoff caused Jefferson Real Property Corp to sell 83 Cathedral Avenue to the Sacred Heart Academy for the 2011 negotiated price of $925,000.

As a result of the Bank accepting the short sale, the Indictment alleges that the institution sustained a $539,867 loss when it released Sofia Atias from further liability on her unpaid debts.

A Federal Case

As unsealed on July 22, 2014, the Indictment charged the defendants with bank fraud and conspiracy. If convicted, each defendant faces up to 30 years of imprisonment, fines, and the forfeiture of $539,000 in allegedly illegal profits arising from the scheme.

In a July 22, 2014, Press Release, we are offered this insights:

"Through a web of lies and false documents, the defendants took advantage of a school's desires to improve its students' athletic facilities, lied to win concessions from a bank, and then lied again by 'flipping' the property and defrauding the bank of over half a million dollars. This is not a case about tough bargaining. This is fraud, pure and simple," stated United States Attorney Lynch.

FBI Assistant Director-in-Charge Venizelos stated, "As alleged in the indictment, while the defendants did not brandish a weapon, they stole over half a million dollars from Bank of America based upon their false misrepresentations and filing of false documents with the victim-lender. Bank fraud burdens lenders with bad loans and weakens our financial markets. Individuals who engage in this criminal activity should be reminded that they will be vigorously investigated and held accountable."

Bill Singer's Comments

Okay. All well and fine. The four Defendants allegedly engaged in deceptive, fraudulent activity and are now facing fines, forfeiture, and hard time in federal prison. How did the US Attorney put it? Oh yeah, this is "not a case about tough bargaining. This is fraud, pure and simple." And let's not forget the equally tough appraisal from the FBI's Assistant Director "while the defendants did not brandish a weapon, they stole over half a million dollars from Bank of America . . ."

Permit me, dear reader, to simply note that the financial misconduct and economic crisis caused by many major financial institutions that culminated in the Great Recession were also not about "tough bargaining." To the contrary, the crimes and/or torts were "fraud, pure and simple." And while not a single banker or broker or trader brandished a weapon, billions and trillions of dollars were stolen from our economy and neighborhoods.

Interesting -- isn't it? -- that when the pure-and-simple-fraud involves four purportedly low level hustlers like the Defendants in this rip-off of Bank of America, the high dudgeon of the Department of Justice comes crashing down upon their heads, accompanied by threats of fines and prison. Which stands in stunning contrast to the manner in which the Bank of America and other too-big-to-fail financial institutions are treated when they engage in pure-and-simple-fraud that stole billions and trillions of dollars from our economy and neighborhoods.The big boys at the big firms remain largely untouched by prosecutors, whereas the small fry get slammed.

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