IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
(TOPEKA DOCKET)

UNITED STATES OF AMERICA,    )

                                                        )

                              Plaintiff,              )

                                                        )

                    vs.                                )        Case No.

                                                        )

                                                        )        Ct. 1:           18 U.S.C. §371

F. JEFFREY MILLER,                      )        Cts. 2-54:    18 U.S.C. §1344

TODD EARNSHAW,                        )        Cts. 55-59:  18 U.S.C. §1957

BRIAN ROUSE,                                )        Ct. 60:         Forfeiture

PAUL E. NICOLACE,                       ) 

ANGELA PARENZA,                        )

ELIZABETH L. HESSEL,                  )

JAMES MOSER,                               )

STEVE MIDDLETON, and                )

LANNY ROSS                                   )

                                                         )  

                              Defendants.         ) 

______________________________  )

INDICTMENT

          THE GRAND JURY CHARGES:

Introduction

At all times material to this indictment:

          1) F. JEFFREY MILLER (“MILLER”) owned and operated Miller Enterprises and Star Land Development through which MILLER would build and develop homes in the greater Kansas City area. MILLER was the largest builder in the area in 1999 and 2000.

          2) MILLER targeted selling his homes to homebuyers with credit problems who had little or no money for a down payment. MILLER started, financed, controlled and was an officer in Associated Capital and Associated Finance, formed in June of 1998, and located in Kansas. Miller would cause buyers to be directed to Associated Capital, where loan applications would be prepared for submission to federally insured financial institutions throughout the United States, the proceeds from which were used to acquire homes built by MILLER. Associated Finance was established to service second mortgage payments to MILLER, on homes purchased from MILLER.

          3)      ANGELA PARENZA (“PARENZA”), and BETH HESSEL (“HESSEL”), were loan officers who worked for Associated Capital. PARENZA also acted as office manager for MILLER. PARENZA would pay all of MILLER’S personal expenses through Miller Enterprises and acted under the direction and control of MILLER. HESSEL and PARENZA would do anything required to complete a loan closing, including but not limited to forging potential buyers’ signatures on loan documents and providing home purchasers with down payments and closing costs, at the direction of MILLER.

          4) TODD EARNSHAW (“EARNSHAW”) and BRIAN ROUSE (“ROUSE”), were loan officers who worked for Maplewood Mortgage and Prosource Mortgage. EARNSHAW was also a real estate agent who sold many of MILLER’s houses. ROUSE was also a sales representative for BNC Mortgage.

          5) Commencing in 1999, MILLER became the subject of lawsuits, actions by state enforcement agencies, legislative action and adverse publicity, including:

A. Investigation by the Attorney General’s Office for the State of Kansas.

B. Investigation and injunctive relief by the Kansas State Bank Commissioner.

C. Investigation by the Attorney General’s Office for the State of Missouri.

D. Action by the Kansas legislature to amend the Kansas Mortgage Business Act, which, beginning November 1, 2001, required any corporation, or any person, who regularly obtained second mortgages to be licensed with the State of Kansas.

As a result of these actions MILLER had to adapt and reconfigure the conspiracy set forth hereinafter. MILLER discontinued doing business through Associated Capital and Associated Finance, and started selling homes through middlemen, including STEVE MIDDLETON (“MIDDLETON”) and EARNSHAW.

          6) PAUL NICOLACE (“NICOLACE”) and LANNY ROSS (“ROSS”) were real estate appraisers doing business in the greater Kansas City area, who provided inflated appraisals for MILLER, MIDDLETON and others.

          7) JAMES MOSER (“MOSER”) and Joe Frey were real estate investors. Beginning in approximately 2002, due to the adverse reputation and publicity MILLER generated in Missouri and Kansas because of his illegal marketing methods and the intentionally poor quality of his construction, there came a point in time when MILLER could no longer sell his houses in any volume directly to individuals. MILLER reconfigured the conspiracy described hereinafter, to market his houses to investors. MILLER agreed to sell houses to investors at a discount if they purchased in volume. This discounting was not disclosed to the lenders. MILLER sold homes in this manner directly to investors and through middlemen such as MIDDLETON.

COUNT 1

A VIOLATION OF TITLE 18, UNITED STATES CODE, SECTION 371

THE CONSPIRACY:

          8)      Beginning in 1997, the precise date being unknown to the grand jury, and continuing through the return of the indictment, the defendants herein, MILLER, EARNSHAW, ROUSE, NICOLACE, PARENZA, HESSEL, MOSER, MIDDLETON & ROSS, combined, conspired, confederated and agreed to commit offenses against the United States of America, in the District of Kansas and elsewhere, by:

A) knowingly, wilfully and unlawfully devising and executing, and attempting to execute, a scheme and artifice to defraud financial institutions and obtain any of the moneys, funds, credits, assets, securities and other property owned by and under the custody and control of financial institutions, by means of material false and fraudulent pretenses, representations, promises and omissions of fact, in violation of Title 18 United States Code, Sections 2, and 1344; and,

B) knowingly, wilfully and unlawfully engaging in monetary transactions in property derived from specified unlawful activity, in violation of Title 18 United States Code, Sections 2 & 1957.

Object of Conspiracy and Scheme

          9) The object of said conspiracy and scheme to defraud was to enrich the conspirators by manipulating home buyers, manipulating appraisals and submitting materially false and fraudulent loan applications to obtain loan proceeds from federally insured financial institutions.

Overt Acts.

          10) It was part of said conspiracy and scheme and artifice to defraud that the defendants and conspirators:

A) Advertised for home buyers with poor credit and financial problems. MILLER and others placed ads in newspapers offering to put such home buyers into MILLER-built residences for little or no down payment.

B) Established a “One Stop Shop” for home buying. By establishing Associated Capital and Associated Finance to go along with his building company, Miller Enterprises, MILLER and his co-defendants and co-conspirators basically offered home buyers a “One Stop Shop.” Home buyers only had to go to Miller Enterprises and they could pick out a house and obtain financing. By doing this MILLER controlled the flow of information that was submitted to the federally insured financial institution.

C) Turned the “One Stop Shop” into a fraudulent real estate machine. MILLER obtained intentionally inflated appraisals by refusing to pay appraisers if his price was not met, selling homes in subdivisions to employees at inflated prices and agreeing to forgive second mortgages on these home, by providing MILLER-built homes as the primary comparables. Through these deceptive and manipulative practices, MILLER and others caused lenders to lend up to, and in excess of, 100% of the property values.

D) Falsified Loan Documents. MILLER, and others, created and caused to be created, materially false loan applications and accompanying documents, such as tax returns, employment verifications, rental agreements, rental verifications and payment histories, to submit to federally insured financial institutions to qualify home buyers for mortgages that otherwise would not have been justified by their financial condition.

E) Provided home purchasers with down payments and closing costs, without the knowledge of the financial institutions providing the loan proceeds.

F) Increased the sales price of the house at or prior to closing, and caused a second mortgage to be prepared on the difference at an illegal interest rate. These second mortgages would be serviced through MILLER’s company, Associated Finance. MILLER and EARNSHAW created a form called the Principal Reduction Form to reduce the second mortgage, which was provided to the home buyer after closing, without knowledge of the first lender, which permitted the home buyer to reduce the second mortgage amount, if the reduced amount was paid off in a specified time.

G) Manipulated home buyers into moving into MILLER-built houses in advance of closing. This created a situation in which home buyers, who were confronted with an increased sales price at closing, contrary to what the buyer had agreed upon, were coerced into closing on home sales, or face eviction and homelessness.

H) Reconfigured the conspiracy to sell homes in volume to investors, who simply planned to resell or refinance the properties. MILLER and others continued to submit material misrepresentations to federally insured institutions including income of investors and false lease/purchase agreements. To induce investors to purchase multiple residences, MILLER agreed to discount the actual price of homes sold to investors. This discount was not disclosed to the federally insured institutions. To induce future purchases MILLER paid kickbacks to investors out of loan proceeds, concealing such payments as referral fees and interior design fees.

I) Obtained the disbursement of $25,042,670.39 in loan proceeds from federally insured institutions to finance the conspiracy and scheme to defraud, pay off construction loans and enrich the conspirators.

          11) In furtherance and execution of the foregoing conspiracy and scheme and artifice to defraud, the defendants committed additional overt acts in the State of Kansas, and elsewhere consisting of the following substantive offenses set forth as Counts 2 through 59, incorporated herein by reference.

COUNTS 2 THROUGH 54

BANK FRAUD

A VIOLATION OF TITLE 18, UNITED STATES CODE, SECTIONS 2 & 1344

          12) Paragraphs 1 through 11 are incorporated herein as though fully set forth.

          13) On or about the dates set forth below, in the District of Kansas and elsewhere, the defendants executed, and attempted to execute, a scheme and artifice to defraud the financial institutions identified below, as defined in 18 U.S.C. § 20, and to obtain the moneys, funds, credits, assets, securities, and other property, owned by or under the custody or control of these institutions, by means of false and fraudulent pretenses, representations, promises and omissions of material facts, thereby obtaining, and attempting to obtain, loan proceeds from the following financial institutions: