Two For One Friday. Bill Singer's New "Street Legal" Column Online. The Old Real-Estate Flim Flam

June 24, 2011

Registered Rep Magazine

Street Legal by Bill Singer

The Regulatory Semantics of Customer Complaints

The first domino in this cascade of disaster fell on Sept. 17, 2008, when an unidentified Merrill Lynch registered representative received an email customer complaint. It said that the representative had entered an unauthorized order for Fannie Mae preferred stock instead of Fannie Mae bonds, and it requested a meeting with a Merrill manager.

In keeping with Merrill's protocols, the representative told an administrative manager about the email. The manager logged the incident into Merrill's central complaint system, an acknowledgment was sent to the customer, and a lawyer from the firm's Office of General Counsel (OGC) was assigned to the matter.

On Sept. 24, Managing Director Joseph Mattia and the Merrill representative met with the client, and Mattia agreed to settle the complaint. (Subsequently, the client was offered $9,198.) Hey, things happen in our biz. The broker swears she said one thing. The client swears he heard another. No one is budging. Eventually, the member firm writes out a check. Life goes on, and, hopefully, future commissions compensate for the settlement.

Case closed - or so you would think. How could something possibly go awry after the firm and the customer had agreed to settle the dispute?



The Old Real-Estate Flim-Flam Mortgage Fraud Game

According to allegations by federal prosecutors, from late 2004 through January 2007, Alexander Kaplan (former Brooklyn-based real estate lawyer and the owner of a title insurance company) and his co-conspirators obtained hundreds of mortgage and home equity loans by submitting loan applications and supporting documents to various lenders that contained false information.

Straw Buyers

In order to obtain the mortgages and loans, individuals who fit a certain financial profile were paid to act as phony purchasers, or "straw buyers," of the target properties. The conspirators created and submitted false and misleading information (such as proof of income or bank statements) concerning the straw buyers' current residences, employment, income, assets, and existing debt.

Inflated Valuation

Kaplan and his co-conspirators sought mortgages and home equity loans at values in excess of the properties' actual sale prices (fair market value). Accordingly, the conspirators procured artificially inflated appraisals of the target properties. Using these false appraisals, the conspiracy arbitraged the inflated appraised value versus the actual sale price to achieve a profit.

Kaplan's Role

Kaplan's role in the scheme largely centered on the purchase of ten rent-regulated condominium apartments at 243 West 98th Street, on the Upper West Side of Manhattan ("the Apartments"). During two days in January 2006, Kaplan served as the attorney for the buyers and the banks in the closings of the Apartments. He conspired with others to obtain mortgages, based on false statements and material omissions, to finance 100 percent of the purchase price of the Apartments.

SIDE BAR: As the buyers' and the bank's attorney, Kaplan presided over the closings, and obtained signed and completed false documents, including, loan application documents, on which each of the buyers fraudulently indicated that the Apartment was to be a "primary residence," and false affidavits stating that the buyers intended to occupy the Apartments. Kaplan submitted these fraudulent documents to the lenders.


Following the closings, almost all of the Apartments were then resold ("flipped") to straw-buyers within a matter of months after their initial purchases - the purported sales prices for each flip was nearly double the initial purchase price. As a result, the conspirators fraudulently obtained almost $13 million in additional loans on the Apartments. Kaplan served as both the buyer's and seller's attorney for each of these flips, drafting sham contracts of sale and other necessary documentation. He also served as the attorney for the banks at the closings of certain loans obtained in connection with the flips of the Apartments.

End of the Road

Kaplan, 36, was convicted, on February 6, 2009, of eighteen counts of mortgage fraud after a two-week jury trial. On Friday, June 17, 2011, he was sentenced in Manhattan federal court to 46 months in prison and three years of supervised release.

Also READ: "Operation Stolen Dreams" Gets Another Mortgage Fraud Plea