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$20M Fraud Sends 5 to Prison

Thursday, January 29, 2015

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Years behind bars and millions of dollars in restitution await most of the players involved in a $20 million federal real-estate fraud case.

Prosecutors announced the final of six sentences in the case Friday (Jan. 23).

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©iStock / Franck-Boston

A home builder, developer, loan officers and attorneys were involved in the $20 million case with 26 victims.

U.S. District Judge J. Frederick Motz of Baltimore, MD, sentenced 74-year-old Mervyn A. Phelan Sr., of Newport Beach, CA, to five years in prison, followed by three years of supervised release for wire fraud conspiracy, wire fraud and obstruction of justice.

Like most of the defendants, Phelan was also ordered to pay restitution to victims who invested heavily in the real-estate scam perpetrated from fall 2009 to June 2011, according to a release by U.S. Attorney Rod J. Rosenstein.

Phelan, the Senior Underwriter with a California loan brokerage named IAG, was ordered to pay restitution totaling $17.4 million.

Conspirators

Authorities said the investment fraud was led by Brian McCloskey, 42, and Patrick J. Belzner, 45.

McCloskey owned a real estate development business known as the McCloskey Group LLC. Belzner, a home builder, began working with McCloskey in late 2008 or early 2009.

In addition to Phelan, the other defendants were Kevin Sniffen, 53, a Maryland title company attorney; Gregory Grantham, 57, IAG's legal counsel; and Sean Krondak, 44, another IAG employee.

Promises, Promises

The group told investors and investment advisers that the McCloskey Group needed to deposit substantial sums in an escrow account to establish that the developer had sufficient cash reserves (liquidity) to obtain project loans.

Investors were told that the money would be returned either when the loan came through or shortly after it was rejected. Belzner and McCloskey promised to pay substantial fees or interest for the short-term investor loans.

Instead, authorities said, the two immediately raided the funds, using some for personal expenses, some for partial repayments to keep the scheme going, and some to repay unrelated creditors of Belzner's.

Blueprints
©iStock / vinnstock

The defendants told investors that the developer needed a cash infusion to show sufficient liquidity to obtain project loans. Principals then raided the funds for personal use—from cable bills, to private-school tuition, to vacation homes, in Belzner's case.

The defendants kept the scheme going with false bank statements showing funds still in the escrow account, emails, telephone calls and "extension" payments to buy time.

In all, the court found, the scheme cost 26 investors more than $19.8 million.

After the scheme was exposed, Krondak assisted Phelan and Grantham in withholding and destroying relevant e-mails in response to federal grand jury subpoenas issued to IAG and to Phelan and Grantham personally, authorities said.

Sentences Ordered

All defendants pleaded guilty in the case.

Belzner (also known as Patrick McCloskey), of Selbyville, DE, was sentenced to 15 years in prison, followed by three years of supervised release, on charges of wire fraud conspiracy, wire fraud and tax evasion.

Belzner was also ordered to pay $19.8 million in restitution.

McCloskey, of Baltimore, was sentenced to 41 months in prison, along with three years of supervised release. He was also ordered to pay $15.85 million in restitution for conspiring to commit wire fraud, according to prosecutors.

Sniffen, of Phoenix, MD, was sentenced to three years in prison and ordered to pay restitution of $15.85 million.

Grantham, of Oceanside, CA, was sentenced to five years in prison and ordered to pay $17.4 million in restitution.

Krondak, of Irvine, CA, was sentenced to six months of home detention as part of three years' probation for obstructing justice.

Cheating Family and Friends

"What makes this investigation particularly disturbing is that Mr. Belzner manipulated, lied to and stole from his friends and next-door neighbors," said Steve Vogt, FBI Special Agent in Charge of the Baltimore Division.

"He took money from hardworking, trusting people and then heartlessly flaunted his theft in front of his victims."

The case was handled under the auspices of the Financial Fraud Enforcement Task Force, which was created in November 2009 to coordinate the federal investigation and prosecution of financial crimes.

The task force involves more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners—"the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud," the group says.

   

Tagged categories: Developers; Enforcement; Good Technical Practice; Home builders; Laws and litigation; North America

Comment from Chuck Pease, (1/29/2015, 12:39 PM)

Good to see so called "White Collar" thieves get more than a slap on the hand.You want to play now you gotta pay!!!


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