Ten arrested in Crisp & Cole mortgage fraud case

Via the Bakersfield Californian
January 21, 2011

The once highflying Crisp & Cole Real Estate firm was a “full-service mortgage fraud factory,” federal authorities said on Friday as they detailed fraud, money-laundering and conspiracy charges against 10 people connected to the company.

Principals David Crisp and Carl Cole — who wowed and riled conservative Bakersfield by barreling down streets in convoys of expensive cars, showing up to fundraisers with bodyguards and airing ads that featured a private jet and gullwing Mercedes-Benz McClaren — were among nine people arrested Thursday, said Rob Guyton, an FBI supervisor in Bakersfield. Crisp’s wife, Jennifer, was allowed to surrender Friday morning in order to make child care arrangements.

Also arrested Thursday were former employees Jayson Costa, Julie Farmer, Sneha Mohammadi, Mike Munoz, Robinson Nguyen and Jeriel Salinas as well as Cole’s son, Caleb Cole.

The Crisps were arrested in San Diego County, Carl Cole was arrested in Oxnard and Nguyen was apprehended in Monterey. The others were arrested in Bakersfield and were taken to Lerdo Jail. None resisted arrest or tried to flee, he said.

The arrests follow years of work by federal investigators who pored over thousands of documents.

“In the mid-2000s, Crisp, Cole & Associates was a high-flying real estate firm,” U.S. Attorney Benjamin Wagner said. “Today it has crashed hard, and it has brought many people down with it.”

Crisp, Cole & Associates was the real estate company’s legal name. Crisp & Cole also operated a mortgage brokerage, Tower Lending, and several other companies.

A long anticipated indictment

The 56-count indictment unsealed Friday alleges conspiracy to commit bank, mail and wire fraud and to launder money from about 2004 to roughly 2007, according to the 31-page document. Charges vary for each person named.

Through a series of transactions, houses were bought and resold at inflated prices, sometimes multiple times in a matter of weeks, the indictment alleges. Many of the deals involved straw buyers and borrowers who lied about their income, jobs and the intended use of the property. Homes purchased for use as a primary residence are eligible for more favorable loan terms.

Some of the loans defaulted immediately. Payments were made on others for just long enough to secure financing for the next flip, authorities allege.

Prosecutors have estimated the crimes cost the mortgage industry at least $20 million, although most industry professionals say that figure is low.

Wagner acknowledged that $20 million was conservative, saying prosecutors went with a number they were confident they could prove in court.

“When there’s so much (housing) market movement, it’s hard to separate what is due to the market and what is due to fraud,” he said. “But we know that when there’s a concentrated effort on such a targeted area, it deliberately creates a bell curve in the values of the property.”

Under federal sentencing guidelines, the maximum penalty for some conspiracy charges is 30 years in prison and a $1 million fine. Money laundering carries a maximum 10 years and $500,000 fine.

The fallout

At a Friday afternoon news conference, FBI assistant special agent Manuel Alvarez called the alleged fraud “without a doubt one of the most egregious examples that our office has seen.”

Mortgage fraud doesn’t just hurt lenders, he said. It hurts taxpayers because loans sometimes are guaranteed by the federal government, and it hurts innocent homebuyers who purchased houses based in part on the sales price of comparable homes nearby.

“Many people in Bakersfield have lost their home as a result of this fraud, and many of them will spend years trying to repair the damage that has been done to their credit as well as to their personal lives,” Alvarez said. “By no stretch of the imagination are these victimless crimes.”

Bakersfield Police Chief Greg Williamson called Crisp & Cole “the biggest case of its kind that I have seen in this area, and I imagine probably one of the biggest cases in the United States.”

Federal raids

The FBI raided 13 sites related to Crisp & Cole in September 2007.

Cole, the supervising broker, and Crisp, a sales agent, lost their real estate licenses in 2008. The following year, the California Department of Real Estate banned Crisp from working in any real estate-related field for three years.

Three of Crisp’s in-laws — Kevin and Leslie Sluga and Megan Balod — as well as former loan officers Christopher Stovall and Jerald Teixeira, have accepted plea deals for fraud and aiding and abetting. Kevin Sluga is a former certified public accountant who helped falsify documents for mortgage loan applications.

Sentencing in the plea deals has been delayed to April in order to factor in the degree of cooperation with investigators. Wagner said he expects sentencing to be delayed again pending the resolution of the latest charges.

Asked why no appraisers were among those arrested, Wagner said the investigation is ongoing and he did not rule out additional defendants.

“These kinds of investigations, particularly white collar crime of this sort, you tend to have concentric circles with key players in the middle. Sometimes what we know changes as the investigation goes forward,” he said.