A corporate criminal

In the fall of 2006, the Tarrant County Criminal District Attorney’s Office received an anonymous letter asking officials to look into why so many houses in a suburban subdivision were in foreclosure, vacant, or for sale.
    “For the past two years, several builders have constructed new homes in Twin Creeks and either allowed them to go to foreclosure or sold them to non-resident buyers,” the letter stated. “While builders having new properties foreclosed and investors buying real estate is not particularly unusual, this situation seems exceptional. About a quarter of the homes in the subdivision (approximately 25 out of 100) may be touched by various parts of this situation.”
    The letter landed on the desk of Assistant Criminal District Attorney David Lobingier, who is assigned to the Economic Crimes Unit and, at the time, was in charge of reviewing citizens’ complaints.
    “I hadn’t ever received such a letter before,” Lobingier said. “I asked an investigator to get the tax rolls and get a survey and figure out if there is anything to it.”
    As it turned out, that anonymous letter was like a pulled thread that slowly unravels a garment. It helped uncover a complex, $13 million mortgage-fraud ring and led to the arrests of 20 people, including a rare indictment and conviction of a corporation.
    “As the cases evolved, it kept growing and growing, and we uncovered another defendant at every turn,” Lobingier said.

Tsunami of mortgage fraud
At the time the District Attorney’s Office received the letter, the Economic Crimes Unit was already covered up in mortgage fraud cases. “We were hit with a tsunami of mortgage fraud,” recalls Criminal District Attorney Joe Shannon, who was then chief of the Economic Crimes Unit.
    In late 2007, the DA’s Office hired Brad Wheeler, a retired Senior Supervisory Resident Agent with the FBI who oversaw the Fort Worth office and led a white-collar crime squad, to help handle the mounting caseload. The so-called “Twin Creeks” case was the first one Wheeler picked up.
    “I looked at it and nothing was passing the smell test for me,” Wheeler said. “The more I looked, the more convinced I was that there was something to it. I really started working the case hard.”
    Wheeler traced property records, scrutinized documents, and followed the money. His investigation revealed that false information from “straw buyers” was being used to buy homes at inflated prices so a group of people could pocket the illicit proceeds. One woman, Chekeelah Phelps, seemed to be the linchpin of the operation.
    “She was the mortgage broker in all of the deals,” Wheeler said. “She was the common thread. She was the one who connected the dots.”
    And while Phelps may have been in the middle of it all, everyone—from the builder and appraiser on down—was on the take. “There were dirty appraisers, dirty borrowers, dirty closers, and dirty developers,” Wheeler said. “If the deal doesn’t close, then nobody makes money. They all had a dog in the fight. They all wanted it to work because if it worked, everyone left the table with a wad of cash in their pocket.”
    At the top of the pyramid was Jerry Jordan, a prominent real estate developer who ran Sierra Developers, Inc. and its sister company, Genesis Homes of Texas, LP. Jordan, like other developers in a down economy, was sitting on newly built houses that wouldn’t sell. He hooked up with Phelps, who lined up straw buyers to purchase his houses. The prices of the houses, meanwhile, were inflated to offset kickbacks.
    “The straw buyers never had any intention of living in the homes,” Wheeler said. “Phelps would get the buyers, for a fee, to lend their credit and name. It would get the house out of Jordan’s company’s name and then he was off the hook. He still got the same amount of money from the sale because they got phony appraisals and inflated the price of the home.”
    For example, if Sierra had a house on the market for $300,000, the company would inflate the price to $360,000 and represent in the closing documents that it was to cover the cost of a renovation or mechanics lien. The additional $60,000 would then be split among the participants in the scheme. The house would end up in foreclosure. In one instance, a hairdresser bought two houses for about $500,000 each on the same day and no one raised an eyebrow.
    “It was just blatant,” Lobingier said. “It was like daytime armed robbery without a mask.”

A novel idea
In January 2010, after an intensive three-year investigation, the grand jury began returning indictments against some of the players in the scheme. When confronted with the evidence, many confessed and started talking.
    “We approached at the bottom with all of the straw buyers,” Lobingier said. “They had less culpability. They couldn’t have made it happen without the broker and the title company. We wanted to get pleas from these people, and then we moved up the food chain to the next level.”
    Most straw-buyers struck deals and received five to 10 years’ probation and a $10,000 fine in exchange for guilty pleas and cooperation. The principals in the scheme received an additional 180 days in the county jail.
    One woman, a former title closer, was sentenced to six years in prison, which is being served concurrently with a 78-month federal sentence she received for mortgage fraud. Phelps, for her part, has pleaded guilty to engaging in organized crime and money laundering and awaits sentencing.
    Jordan of Sierra Developers, meanwhile, passed away in 2010 before charges could be brought against him individually. But Lobingier had a novel idea, a way to still make his company pay. “I thought, ‘They shouldn’t benefit from all of this illegal activity. Let’s try and indict this corporation.’”
    Wheeler liked the idea. “It was a way to ensure that all the time we spent on that aspect of the investigation wasn’t in vain,” he said. “The least we could do is try and recover some funds.”

Dirty deeds
don’t come cheap
Over the years, Lobingier had contemplated indicting corporations, but the facts never bore it out. “I’ve investigated doing it before but didn’t pursue it because the evidence was too weak or there were questions about their true culpability,” he said. “It is not a common tool that is utilized because you seldom have high managerial people committing crimes on behalf of the corporation. Usually they are committing crimes to benefit themselves.”
    This case was different. “If you have a corporation that is solvent, you can make them account for their crimes in a financial way, which is really the only way to hurt them,” Lobingier said.
    Lobingier dug in, relying on several provisions to guide his way: Chapter 7 of the Penal Code (§§7.21, 7.22, et. seq.) specifically addresses corporate defendants. Section 12.51 deals with authorized punishments for corporations and associations. Chapter 17A in the Code of Criminal Procedure sets out the rules for charging corporations and how to process them.
    On Dec. 15, 2011, a Tarrant County grand jury indicted Sierra Developers, Inc. on one charge of making a materially false statement in writing to obtain property or credit over $200,000. The panel also indicted Genesis Homes of Texas, LP, on a charge of making a materially false statement in writing to obtain property or credit over $200,000.
    The accusations were that Jordan used the companies to help generate more than $600,000 in fraudulent loans for the sale of two homes worth far less in the Twin Creeks subdivision. The fraudulent loans were handled through companies Phelps operated.   
    Under §12.51 of the Penal Code, the indicted companies were facing a huge fine—double the amount of the loss—if they went to trial and were found guilty. (Jail time is not an option in cases in which a corporation is the defendant.) “If you’re talking about a $600,000 loss, that’s $1.2 million,” Lobingier said. “It could have been over a million dollars if they tried it.”
    The surviving management of the entities decided not to roll the dice. In July, both sides reached a plea bargain agreement and Sierra Developers, Inc. pled no contest in exchange for a $50,000 fine and the State dismissing the charge against Genesis. As part of the plea bargain, Sierra had to pay the $50,000 upfront. The goal, Lobingier said, was to recoup some of the money for the taxpayers of Tarrant County.
    “We had really been unable to get restitution because most of the mortgage companies involved in the scam were now defunct and scattered all over the United States,” Lobingier said. “We focused on getting a substantial fine that would go into the general fund and back to the taxpayers of Tarrant County.”
    On the day of the plea, the defense attorney representing Sierra brought a $50,000 check to the courthouse, along with a financial statement showing this amount was the corporation’s net worth. “We, in essence, forced the shareholders to give up their remaining equity in the company,” Lobingier said.

Thinking outside the box
Currently, 19 defendants have been convicted for their roles in the scheme and one—Chekeelah Phelps—awaits sentencing. The investigation continues and more arrests are expected.
    The elaborate scam was based on greed. The promise of easy money snared people who would otherwise be honest citizens. And if not for the anonymous letter, they might have gotten away with it.
    “What that letter did was enable us to get a jump on it and figure out who the title companies and lenders were,” Wheeler said. “Most of the mortgage companies, by the time we started working on the case, were out of business. These cases are extremely paper-intensive and go slowly. Some find it to be boring. But when you get the string to pull, sometimes it will unravel rather quickly.”
    To be sure, the case is not one that the Economic Crimes Unit will soon forget. Not only was it labor intensive and unique, but Lobingier and Wheeler tried something they had not done before.
    Lobingier encourages other law enforcement agencies to think outside the box and go after a corporation if the facts support it.
    “Don’t hesitate to pull that arrow out of your quiver and use it,” he said.