Here is the next installment of Attorney Behr’s mortgage fraud prosecutions series:
18 U.S.C. §225 Continuing financial crimes enterprise
Continuing financial crimes enterprise statue criminalizes any person that “…organizes, manages or supervise a continuing financial crimes enterprise; and receives $5,000,000.00 or more in gross receipts from such enterprise during any 24-month period…”48 The meaning of “…a continuing financial crimes enterprise…” is any combination of eleven other criminal violations found within the same United States Code title “…affecting a financial institution, committed by at least 4 persons acting in concert.”49
This statute was made use of in United States v. Lefkowitz, 125 F.3d 608 (8th Cir. 1997). “From 1984 to 1994, Lefkowitz was President of Cit-Equity Group, Inc. (CEG), a California corporation that formed real estate limited partnerships to build low and moderate-income housing.”50 Starting in 1987, “…CEG began concentrating on projects that would qualify limited partners for low-income housing tax credits…” from the federal government.51 Obtainment of these credits were had when investors built, rehabilitated or acquired “…buildings in which a prescribed percentage of the apartment units are occupied by low-income tenants.”52 Subsequently, the “…government allocates tax credits to the States, with at least ten percent reserved for ventures in which nonprofit organizations participate.”53 Following the federal allocation, individual states and local housing agencies would dispense “…the credits to specific projects.”54
Funds raised from limited partners were used for differing projects as equity, “…generally between one-quarter and one-third of the total project cost.”55 Specifically, after a building is completed, “…CEG’s management company lease out the apartment, the state housing agency release the allocated tax credits, remaining debts to the builder were paid, and…” lastly “…limited partners began receiving their annual tax credits.”56
“During the late 1980’s, CEG’s builders obtained construction loans to build the projects, while CEG obtained permanent financing to replace the construction loan once a building was completed.”57 Starting in 1990 construction loans became hard to obtain and CEG began marketing First Secured Mortgages (FSMs) to other investors.58 These FSM investors made loans to limited partnerships that owned by one or more of the projects “…with the expectation that CEG’s permanent lenders would take out the FSM loans with long-term mortgages.59
“When Lefkowitz left CEG in May of 1994, properties in which limited partners and FSM investors had invested more than $80,000,000 were unbuilt, unfinished, or lost in foreclosure.”60 “Funds from limited partners and FSM investors were first deposited in an operating account for each particular investment.”61 However, “…Lefkowitz and CEG as general partners immediately transferred all investor funds to a central CEG account.”62 Once in this account these monies were misused by the company.63 The extent of the alleged scheme and the participation of the defendant’s general partners provided the evidence needed to convict the defendant of the crime of continuing financial crime enterprise statute, because “…banks invested a total of $1,120,000 in…” FSM loans.64
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