Three Conspirators Convicted in $78 Million "Dream Home" Mortgage Fraud Scheme
Defendants Spent Millions of Dollars of Investor Funds to Employ Chauffeurs and Maintain a Fleet of Luxury Cars; Travel in Luxury to the Super Bowl and All-Star Game; Pay Off Prior Investors as Part of a Ponzi Scheme; and Fund a Failed Investment Venture and Undisclosed Third Party Businesses
Greenbelt, Maryland - A federal jury convicted Michael Anthony Hickson, age 48, of Commack, New York; Isaac Jerome Smith, age 48, of Spotsylvania, Virginia; and Alvita Karen Gunn, age 33, of Hanover, Maryland today of fraud conspiracy, wire fraud and conspiracy to commit money laundering in connection with their participation in a massive mortgage fraud scheme which promised to pay off homeowners’ mortgages on their “Dream Homes,” but left them to fend for themselves. In addition to the above described convictions, Hickson, chief financial officer of Metro Dream Homes (MDH), was also convicted of making a false statement in a federal court proceeding.
The convictions were announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; Special Agent in Charge Rebecca Sparkman of the Internal Revenue Service - Criminal Investigation, Washington, D.C. Field Office; Maryland Attorney General Douglas F. Gansler; and Inspector General Jon T. Rymer of the Federal Deposit Insurance Corporation.
“The defendants used slick marketing to conceal empty promises,” said U.S. Attorney Rod J. Rosenstein. “They convinced many victims to invest at least $50,000 by refinancing their existing homes or buying new homes at inflated prices, while claiming that Metro Dream Homes would repay the mortgages with revenue from profitable businesses. There was no revenue, however, to pay the mortgage payments. Instead, the conspirators used some of the investors' money to repay earlier investors in the Ponzi scheme and spent the remainder on themselves."
“It is exactly this type of fraud that has the attention of federal law enforcement,” stated Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation. “Cases like this that involve false promises, misleading information and fraudulent sales pitches that lure unsuspecting citizens into giving up their hard earned savings are being aggressively pursued across Maryland and the United States and will continue to be a major focus of the FBI.”
“The IRS-Criminal Investigation, along with our fellow law enforcement partners, is committed to following the money trail,” stated Rebecca Sparkman, Internal Revenue Service-Criminal Investigation Special Agent in Charge, Washington, D.C. Field Office. "This verdict shows that the appearance of success can be a mask wherein the underlying structure can fall apart at any time and leave investors in financial ruin.”
"The Federal Deposit Insurance Corporation Office of Inspector General is pleased to join the United States Attorney for the District of Maryland, Federal Bureau of Investigation, Internal Revenue Service Criminal Investigation Division, and Maryland Attorney General in announcing these convictions today. We are committed to our partnerships with others in federal, state, and local law enforcement organizations as we address mortgage fraud cases throughout the country. The American people need to be assured that their government is working to ensure integrity in the financial services and housing industries and that those involved in criminal misconduct that undermines that integrity will be held accountable."
According to evidence presented at the six week trial, beginning in 2005, the defendants targeted homeowners and home purchasers to participate in a purported mortgage payment program called the “Dream Homes Program.” In exchange for a minimum of $50,000 initial investment and an “administrative fee” of up to $5,000, the conspirators promised to make the homeowners’ future monthly mortgage payments, and pay off the homeowners’ mortgage within five to seven years. Dream Homes Program representatives explained to investors that the homeowners’ initial investments would be used to fund investments in automated teller machines (ATMs), flat screen televisions that would show paid business advertisements and electronic kiosks that sold goods and services. To give investors the impression that the Dream Homes Program was very successful, Metro Dream Homes spent hundreds of thousands of dollars making presentations at luxury hotels such as the Washington Plaza Hotel in Washington, D.C., the Marriott Marquis Hotel in New York, New York and the Regent Beverly Wilshire Hotel in Beverly Hills, California.
Trial testimony showed that in February 2007, the Dream Homes Program added a second program called “POS Dream Homes” that offered similar promises of paying off investor mortgages in five to seven years in exchange for an up-front investment of $50,000 or more. Collectively, these programs had offices in Maryland, the District of Columbia, Virginia, North Carolina, New York, Delaware, Florida, Georgia and California.
According to trial testimony, the defendants failed to advise investors that: the ATMs, flat-screen televisions and kiosks never generated any meaningful revenue; the defendants used the funds from later investors to pay the mortgages of earlier investors; and MDH had not filed any federal income tax returns throughout its existence. The defendants also failed to advise investors that their investments were being used for the personal enrichment of select MDH employees, including the defendants, to: pay salaries of up to $200,000 a year as well as their mortgages; employ a staff of chauffeurs and maintain a fleet of luxury cars; and travel to and attend the 2007 National Basketball Association All-Star game and the 2007 National Football League Super Bowl, staying in luxury accommodations in both instances. Nor were investors told that investor funds were used to: pay off investors in a prior failed ATM investment venture called Bankcard Group; make multiple donations of up to $50,000 each to charitable organizations to give MDH the appearance of being financially successful; and transfer millions of dollars in investor funds to third-party businesses for purposes not disclosed to investors.
Trial testimony showed that the defendants arranged for early Dream Homes Program investors, whose monthly mortgage payments had been paid by MDH using the funds of later Dream Homes Program investors, to attend recruitment meetings to assure potential investors that the Dream Homes Program was not a fraud. MDH used a third party company to pay investors to advertise the Dream Homes Program to friends and family. MDH encouraged homeowners to refinance existing mortgages on their homes in order to withdraw equity and generate the funds necessary to enroll their homes in the Dream Homes Program.
On Aug. 15, 2007, the Maryland Securities Commissioner issued a cease-and-desist order to MDH and other related companies directing them to immediately cease the offering and sale of unregistered securities in connection with their promotion of the Dream Homes Program. However, the defendants thereafter called meetings in which investors were told that MDH was earning up to $10 million in one month and that the company’s legal difficulties were the result of either misunderstandings or racial animus against company leaders.
On Sept. 4, 2007, the defendants filed a legal challenge in federal court in Maryland to the cease-and-desist order. Trial testimony established that at a hearing on Sept. 12, 2007, Hickson testified that the financial success of the Dream Homes Program did not rely upon new investor funds, when in fact Hickson knew that the sole source of meaningful revenue for MDH was new investor funds.
As a result of the scheme, more than 1,000 investors in the Dream Homes Program invested approximately $78 million. When the defendants stopped making the mortgage payments, the homeowners were left to attempt to make the mortgage payments MDH had promised to make in full.
All three defendants face a maximum sentence of 20 years in prison for the fraud conspiracy; 20 years in prison on each of the 15 counts of wire fraud; and 20 years in prison for conspiracy to commit money laundering. Hickson also faces a maximum sentence of five years in prison for making false statements.
U.S. District Judge Roger W. Titus scheduled sentencing for Michael Hickson on July 1, 2011 at 11:00 a.m., Isaac Smith on June 27, 2011 at 1:00 p.m., and Alvita Gunn on June 27, 2011 at 2:00 p.m.
Carole Nelson, age 52, of Washington, D.C., the chief financial officer of POS Dream Homes, previously pleaded guilty to money laundering, and Charlotte Melissa Josephine Hardmon, age 39, of Bowie, Maryland, pleaded guilty to conspiracy to commit wire fraud in connection with their participation in this scheme. Both await sentencing on a date to be scheduled.
This prosecution is being brought jointly by the Maryland and Washington, D.C. Mortgage Fraud Task Forces, which are comprised of federal, state and local law enforcement agencies in Maryland, Washington, D.C. and Northern Virginia. The Task Forces were formed to promote the early detection, identification, prevention and prosecution of various kinds of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Forces, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and help to ensure the integrity of the mortgage market and other credit markets. Information about mortgage fraud prosecutions is available on the internet at http://www.usdoj.gov/usao/md/Mortgage-Fraud/index.html.
United States Attorney Rod J. Rosenstein praised the FBI, the IRS - Criminal Investigation, the Maryland Attorney General’s Office - Securities Division and the Federal Deposit Insurance Corporation - Office of Inspector General for their investigative work. Mr. Rosenstein thanked Assistant U.S. Attorneys for the District of Maryland Jonathan C. Su and Bryan E. Foreman, who are prosecuting the case.