IN THE UNITED STATES DISTRICT COURT FOR THE
August 1998 Term - At Alexandria, Virginia
THE GRAND JURY CHARGES THAT:
A. DEFENDANTS AND CO-CONSPIRATORS
1. At all times material to this Indictment, the defendants, KENNETH R. ARNOLD and ALAN SHAMS, were real estate speculators doing business in the Eastern District of Virginia.
2. Various firms and individuals, not made defendants in this count, participated as co-conspirators in the offense charged and performed acts and made statements in furtherance of it.
B. DESCRIPTION OF THE OFFENSE
3. Beginning at least as early as August 1991 and continuing through at least April 1995, the exact dates being unknown to the grand jury, the defendants and others entered into and engaged in a combination and conspiracy to limit the bidding at certain public real estate foreclosure auctions in the Eastern District of Virginia. Defendant Shams joined this ongoing conspiracy at least as early as April 27, 1994. The combination and conspiracy unreasonably restrained interstate trade and commerce in violation of Section 1 of the Sherman Act (15 U.S.C. § 1).
4. In certain instances when real estate located in the Commonwealth of Virginia is sold, the sale is conducted by public auction. When a deed of trust, commonly called a mortgage, is foreclosed upon in the Commonwealth of Virginia, the property is sold at a public auction in order to protect the interests of the mortgage holder and the property owner.
5. When a mortgage is foreclosed, the mortgage holder appoints a Trustee, pursuant to provisions in the original mortgage documents, to conduct the sale of the property by public auction. After required notice of an auction is given, the Trustee holds the auction on the date and time specified.
6. The bidding at the public auction typically opens at the amount owed by the property owner to the mortgage holder. The Trustee who conducts the foreclosure auction seeks to obtain the highest price possible at the public auction by soliciting open and competitive bidding from potential purchasers. The Trustee stops the bidding when the highest price reached by competitive bidding is offered. The high bidder pays a deposit to the Trustee in the form of a cashier's or certified check. The Trustee then executes a Memorandum of Sale indicating the property address, the date of the auction, the high bidder, the high bid amount, and the amount of the deposit paid. The Memorandum of Sale is needed by the high bidder in order to complete the settlement of the property transaction, which usually occurs within 15 days of the auction. Once the settlement of the property transaction is completed, the high bidder takes title to the property.
7. When a property is sold at a foreclosure auction, any amount paid for the property above the amount owed to the mortgage holder(s) represents the property owner's equity in the property and is paid to the property owner.
8. The charged combination and conspiracy consisted of a continuing agreement, understanding, and concert of action among the defendants and co-conspirators to rig bids, the substantial terms of which were:
C. MEANS AND METHODS OF THE CONSPIRACY
9. For the purpose of forming and carrying out the charged combination and conspiracy, the defendants and co-conspirators did those things that they combined and conspired to do, including, among other things:
10. In the manner described in paragraph 9, and for the
purpose of carrying out the charged combination and conspiracy, the
defendants and co-conspirators unreasonably restricted full
competitive bidding at public foreclosure auctions of the following
properties, among others, on or about the listed dates:
D. TRADE AND COMMERCE
11. The business activities of the defendants and co-conspirators that are the subject of this count were within the flow of, and substantially affected, interstate trade and commerce.
12. Foreclosure auctions held in the Eastern District of Virginia regularly were advertised in newspapers that were distributed in the District of Columbia and in Maryland.
13. Potential purchasers at public real estate foreclosure auctions in the Eastern District of Virginia made telephone inquiries from outside Virginia regarding properties to be auctioned, and traveled across state lines to attend such auctions.
14. In a substantial number of instances when the defendants or co-conspirators purchased a property at a public real estate foreclosure auction, interstate contacts by mail and wire initiated the foreclosure proceeding, and interstate transfers of money and documents were necessary to transfer ownership of the property to the defendants or their co-conspirators.
E. JURISDICTION AND VENUE
15. The combination and conspiracy charged in this count was formed in and carried out, in part, within the Eastern District of Virginia, within the five years preceding the return of this Indictment.
(In violation of Title 15, United States Code, Section 1.)
THE GRAND JURY FURTHER CHARGES THAT:
1. KENNETH R. ARNOLD is hereby indicted and made a defendant in this count.
2. During at least October 1993, the exact dates being unknown to the grand jury, the defendant, KENNETH R. ARNOLD, and others, within the Eastern District of Virginia, as part of an ongoing arrangement, did knowingly devise and intend to devise a scheme and artifice to defraud and to obtain money and property by means of false and fraudulent pretenses, representations and promises from the mortgage holders and owners of a property that was being sold at a public real estate foreclosure auction in the Eastern District of Virginia. That scheme and artifice to defraud consisted of suppressing competition at the public auction of a property at 9650 Grant Avenue, Manassas, VA, by agreeing not to bid against one another at the public auction, by acquiring the property at a lower price than would have resulted from a fully competitive auction, and by holding a second, secret auction and dividing the profits of the scheme (the difference between the public and secret auction prices) among themselves.
3. On or about October 13, 1993, in the Eastern District of Virginia, the defendant, KENNETH R. ARNOLD, in connection with the auction of a property at 9650 Grant Avenue, Manassas, VA, for the purpose of executing the scheme and artifice described above and attempting to do so, knowingly caused to be delivered by mail according to the direction thereon, by the United States Postal Service, an envelope addressed to Leo Gulley, 10907 Blue Roan Road, Oakton, VA 22124,containing a payoff check.
(In violation of Title 18, United States Code, Section 1341.)
A TRUE BILL