In an unprecedented trial, four people charged with mortgage fraud were acquitted Friday by a jury in Sacramento federal court after defense attorneys argued the real culprits are the so-called “victim lenders.”
According to experts, it is the first time in such a trial that a court has allowed the defense to present evidence that lenders ignored gaping holes and blatant lies in loan applications during the years leading up to the economic meltdown.
“The big banks and other lenders made as many loans based on patently false information as they could, packaged them as securities and passed them up the chain to Wall Street’s investment and management bankers, who peddled them to an unsuspecting public,” said defense lawyer Tim Pori after the verdict.
“No bank executives have been prosecuted,” Pori said. “Sure, there have been multibillion-dollar settlements with some big banks, but none of their officers – the ones who really pulled the strings – will ever see the inside of a cell.”
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U.S. Attorney Benjamin Wagner, in a statement issued at The Sacramento Bee’s request, said:
“Criminal trials are inherently uncertain endeavors. We have had tremendous success in convicting scores of persons in mortgage fraud cases over the last several years, but it is unrealistic to expect that we will get the outcome we are seeking in every single case.
“We respect the criminal trial process, and accept the jury’s verdict in this case. It will not dissuade us from pressing forward in the many other mortgage fraud cases currently pending in this courthouse.”
An acquittal in Sacramento federal court is rare, regardless of the charges. But with respect to mortgage fraud, it is virtually unheard of.
There was little or no difference between the mail fraud charges against Yevgenity Charikov, Vitaliy Tuzman, Nadia Talybov and Juliet Romanishin and charges brought against hundreds of other defendants prosecuted by the U.S. attorney’s office in the Sacramento-based Eastern District of California.
The office has often described the Central Valley as “ground zero” for mortgage fraud, and noted it has been a national pacesetter in pursuing the perpetrators.
In this trial, U.S. District Judge Lawrence K. Karlton, over the government’s strenuous objection, allowed testimony meant to show that the lenders in the two transactions at issue – Aegis Wholesale Corp. and Greenpoint Mortgage Funding – didn’t care whether information on the applications was true or false.
Under those circumstances, the defense argued, the information was not material because, either way, the loan would have been approved.
“In the week when details of the United States government’s $16.5 billion civil settlement with Bank of America was disclosed, I hope the jury’s verdict causes the U.S. attorney’s office to readjust its priorities and investigate criminally the true culprits of our country’s financial collapse, the mortgage lenders’ officers who committed the real fraud – not those who allegedly lied on the industry’s ‘liar’s loans,’ ” said defense lawyer John Balazs.
Assistant U.S. Attorney Heiko Coppola argued in court papers filed before the trial that the defense’s contentions are not a defense to mail fraud. He said the defense lawyers “cannot argue that the victim, in this case the lender, is to blame. Argument or evidence concerning lender fault is irrelevant ... This case is about what the defendants did. It is not about what the lenders could have done or should have done.”
According to prosecutors’ filings, Charikov, a 42-year-old real estate agent who lives in West Sacramento, used straw buyers to purchase properties in a declining real estate market and then immediately resold them to another straw buyer at fraudulently inflated prices. To qualify for the mortgage loans, prosecutors contended, the defendants submitted fraudulent loan applications to lenders, falsely stating the straw buyer’s income, liabilities, and intent to occupy the home as a primary residence.
The indictment alleges that Charikov recruited his loan officer wife, Romanishin, 32, of West Sacramento; Tuzman, 42, of Citrus Heights; and Talybov, 32, of Antelope, as straw buyers in transactions involving the sale and purchase of two West Sacramento properties in 2006 and 2007.
After the first set of straw buyers obtained the proceeds from Talybov’s fraudulent purchases, they allegedly split the take with Charikov. Subsequently, Talybov defaulted on loans for both properties.
All four were charged with fraud that resulted in alleged losses to the lenders of at least $710,000. Charikov and Tuzman were also charged with laundering their ill-gotten gains.
William Black, who boasts long academic and regulatory careers, was a key expert witness for the defense, again over Coppola’s objection. Black is an associate professor of economics and law at the University of Missouri, Kansas City, and the “distinguished scholar in residence for financial regulation” at the University of Minnesota’s School of Law.
His testimony purportedly connected the fraud in the Sacramento case directly to the lenders, and he explained to the jury why the false information on the applications had no bearing on lending decisions.
“This is the first time that the overwhelming fraud at the banks has been discussed in a criminal courtroom by the person with the greatest expertise on the issue, William Black,” said defense lawyer Toni White after the verdict.
“Prosecutors have refused to criminally prosecute the elite bankers responsible for the mortgage crisis that decimated our economy. The jurors heard shocking testimony from ‘control fraud’ expert William Black that regular people who got loans they were unable to pay back did not (defraud) the banks. The elite bankers commit the fraud while prosecutors look the other way and prosecute the wrong people.”