New Castle Man Sentenced To 41 Months In Prison For Fraud And Money Laundering
PITTSBURGH, Pa. ‑ A resident of New Castle, Pa., has been sentenced in federal court to 41 months in prison and three years supervised release on his conviction of bank fraud, mail fraud and money laundering, United States Attorney David J. Hickton announced today. He was also ordered to pay more than $300,000 in restitution.
Senior United States District Judge Gustave Diamond imposed the sentence on Nicholas DeRosa, 65.
According to information presented to the court, the Lawrence County Housing Authority, under the direction of then Lawrence County Treasurer Gary Felasco, either lent or made a grant of $200,000 to Affordable Housing of Lawrence County, a then newly formed not‑for‑profit entity. Affordable Housing's purported purpose was to purchase homes, fix them up, and then rent or sell them to the elderly or disabled. In 2004, Affordable Housing hired Robert Ratkovich, the president of New Castle City Council and a maintenance employee for the Lawrence County Housing Authority, as a consultant at $45 an hour. Ratkovich, among other things, was to search for suitable homes for Affordable Housing to purchase as part of its purported mission.
After Affordable Housing paid Ratkovich approximately $60,000 in consulting fees, Ratkovich recommended that Affordable Housing purchase seven properties. Four of the seven properties were owned or associated with DeRosa, former member of New Castle City Council, the now retired Assistant Superintendent of the New Castle Area School District, and well‑known local power broker. Two of the other properties were owned by DeRosa's cousin, and the seventh property was owned by one of DeRosa's longtime friends. Many of these homes were in dreadful condition, and Ratkovich recommended these homes despite the availability of homes in better condition and for less money.
Affordable Housing lacked sufficient funds to purchase these homes, and therefore, through Ratkovich, it applied for a loan through First Commonwealth Bank, a federally insured financial institution. Anthony J. Staph, Jr., the son of one of DeRosa's friends, submitted fraudulent appraisals of the properties that drastically overstated the values of most of the homes. Had this case gone to trial the government would have presented evidence in the form of the testimony of Ratkovich and Felasco that DeRosa directed that Staph provide the fraudulent appraisals.
Staph is the Vice‑President of Castle Realty Appraisal Services, Inc. On October 17, 2010, Castle Realty Appraisal Services pleaded guilty to a bank fraud based on its submission, through Staph, of the fraudulent appraisals.
In December 2005 the loan closed. First Commonwealth financed the majority of the purchases through a $250,000 loan, and Affordable Housing contributed approximately $90,000 toward the purchases. DeRosa received his money at the closing. By January 2006, most of the Board from Affordable Housing had resigned. By March 2006, Affordable Housing defaulted on the loan. In September 2006 Affordable Housing auctioned all but one of the properties. First Commonwealth received pennies on the dollar when Affordable Housing auctioned off the properties.
At trial, the government would have presented evidence that Affordable Housingwas simply a mechanism to get money to corrupt politicians like Felasco and Ratkovich, and more importantly, to get money to DeRosa. The buyers of the properties, other than DeRosa himself, were required, as part of the deal for getting rid of their properties, to kick back money to DeRosa. None of the kick back payments were disclosed on the settlement statements approved by First Commonwealth Bank, as required, nor were the kick backs disclosed in the Sales Agreements that were provided to the Bank. Thus, the Bank was led to believe that the sales prices were actually higher than the true sales prices.
Originally, 14 properties were to be purchased by Affordable Housing, but First Commonwealth Bank would onlyapprovea loan that would allow Affordable Housingto purchase seven. At trial, the government would have presented evidence that DeRosa decided which properties to purchase, and he decided how much Affordable Housing was going to pay for those houses. The government would also have presented evidence that when Ratkovich asked DeRosa about the appraisals, knowing that they would have to be overstated to get the loan approved, DeRosa assured Ratkovich that the appraisals would support the values submitted.
The appraisals prepared by Staph contained numerous misrepresentations related to, among other things, the conditions of the properties, improvements to the properties, and the neighborhood. The appraisal for one of the properties indicated that the property was occupied, when, in fact, the property had not been occupied for years. Staph also ignored more comparable properties in order to support his fraudulently elevated values of the properties.
In one of the properties owned directly by DeRosa and his partner (217 East Wallace Avenue), the property was in deplorable condition. The appraisal for this property was dated Nov. 11, 2005. This property was condemned by the City of New Castle on Nov. 21, 2005, just 10 days later. According to the appraisal, however, there were no problems with the condition of this property. Staph rated the condition of this property as average and failed to note a number of severe problems with the property that led to its condemnation.
Another glaring omission from the appraisals was the accumulated trash in at least one of the properties. After the majority of the Board resigned, one of the few remaining officers inspected the properties and noted a huge accumulation of trash at least one of the properties. The remaining officer used some of the little remaining funds from Affordable Housing to hire a company to dispose of the trash. Ten dumpster loads of trash were removed from five of the properties, but there is no mention of this issue in the appraisals despite representations that Staph had inspected the interiors of the properties. In total, Staph's appraisals valued the seven properties at $350,000. An expert hired by the government prepared reports indicating that the values of those properties was approximately $200,000.
As set forth above, Ratkovich had a consulting contract with Affordable Housing in which he was to be paid $45 an hour. Ratkovich received approximately $60,000 pursuant to this consulting agreement, but did not work anywhere close to the number of hours that would have been required to earn $60,000. The government would have presented evidence at trial that a portion of the $60,000 was paid to DeRosa pursuant to an ongoing agreement to share funds from criminal activities, only some of which are specifically charged in the Superseding Indictment.
As part of his consulting activities, Ratkovich was tasked with locating properties for Affordable Housing to purchase. He, of course, did not do a real search for appropriate properties, but, at DeRosa's insistence, recommended that Affordable Housing purchase the seven properties referred to above. Originally there were going to be fourteen, but First Commonwealth Bank would not fund a loan that large. The government would have presented evidence at trial that the sales prices agreed to were not the product of arms length negotiations, but that Ratkovich simply accepted the sales prices DeRosa demanded. In addition, as discussed above, some of the sellers agreed to pay kickbacks to DeRosa.
Despite those facts, Ratkovich presented his recommendations to the Board of Directors of Affordable Housing as if these properties were the product of a true search, and that the sales prices were negotiated at arms length. He failed to disclose to them the true situation with these properties. Based on Ratkovich's recommendation, the Board approved the purchase of the seven properties, leading to the financial downfall of Affordable Housing.
As far as the Money Laundering Conspiracy charge, the participants in the conspiracy, including DeRosa, Ratkovich and Felasco, funneled some of the money from the above‑described schemes through a series of transactions to Felasco's attorney. There is no suggestion that the attorney knew that the fund he received were illegally obtained funds.
Felasco was, at that time, facing state corruption charges. In summary, the co‑conspirators arranged for cash from the transactions to be deposited into the account of an individual who ran a business that received cash receipts. That individual then forwarded money to Felasco's attorney. The idea of depositing the money into the account of this individual was to disguise the illegal nature of the funds and its connection to them, and try to make it look like legitimate money. The participants in the conspiracy were motivated to pay Felasco's attorney fees in connection with his state case to encourage Felasco not to reveal their involvement in the fraud schemes outlined above and a series of other fraud schemes.
Assistant United States Attorneys Brendan T. Conway and James T. Kitchen prosecuted this case on behalf of the government.
U.S. Attorney Hickton commended the Mortgage Fraud Task Force for the investigation leading to the successful prosecution of DeRosa.
The Mortgage Fraud Task Force conducted the investigation that led to the prosecution of DeRosa. The Mortgage Fraud Task Force is comprised of investigators from federal, state and local law enforcement agencies and others involved in the mortgage industry. Federal law enforcement agencies participating in the Mortgage Task Force include the Federal Bureau of Investigation; the Internal Revenue Service ‑ Criminal Investigation; the United States Department of Housing and Urban Development, Office of Inspector General; the United States Postal Inspection Service; and the United States Secret Service. Other Mortgage Fraud Task Force members include the Allegheny County Sheriff's Office; the Pennsylvania Attorney General's Office, Bureau of Consumer Protection; the Pennsylvania Department of Banking; the Pennsylvania Department of State, Bureau of Enforcement and Investigation; and the United States Trustee's Office.
Mortgage industry members with knowledge of fraudulent activity are encouraged to call the Mortgage Fraud Task Force at (412) 894‑7550. Consumers are encouraged to report suspected mortgage fraud by calling the Pennsylvania Attorney General's Consumer Protection Hotline at (800) 441‑2555.
Protect yourself from fraud, and report suspected cases of financial fraud to local law enforcement.