Sex, Lies, and Real Estae: Operation Wax House Comes To A Close
Mortgage fraud was rampant throughout the United States before the 2008 financial crisis. It was a time when bankers, mortgage brokers, title company representatives, rating agency analysts and home buyers were caught up in the euphoria of easy money. Although many shared in the blame after the collapse, there were not enough handcuffs to lock up all of those involved in the massive fraud … particularly the many executives within the banking industry who fueled it. Some were not so lucky. In hot beds for mortgage fraud in Florida, Arizona and California, where home values and speculation were rampant, plenty of bit players were prosecuted and found themselves with long prison terms. Far from these areas, the unlikely town of Waxhaw, NC, outside of the banking center of Charlotte, would be home to one of the largest mortgage fraud busts in the country–Operation Wax House.The FBI lists 91 defendants by professional category in its December 2014 press release; attorneys & paralegals, bank insiders, mortgage brokers, builders & sellers, facilitators, financiers, buyers, notary publics, appraisers, real estate agents and promoters. The offenders, mostly African-American, received prison terms ranging from a few months to 30 years for James Tyson Jr., 34, who was just sentenced in May after reaching a plea agreement with government prosecutors.The Wax House investigation began in 2007 and became one of the largest in the country, involving over $100 million in mortgage loans. Once investigators started looking at bank documents (nearly 1,000,000 pages were eventually part of the evidence in multiple cases) and talking to people, they did not find a structured criminal enterprise but instead a connected web of fraud among numerous disinterested parties. Most all were charged under the Racketeer Influenced And Corrupt Organizations (RICO) statute that was originally aimed at combating crimes by Mafia organization.
According to white-collar attorney David Benowitz of Price Benowitz LLP, whose firm represents white collar clients in federal court but did not represent any of the clients in this case, “Along with the recent increase of the use of wiretaps and informants that are traditionally utilized by the government in “street crime” investigations, we have seen the use of RICO expanded in white collar cases.” Benowitz added, “It’s an extremely aggressive and sometimes unfair use of prosecutorial power.”NOVATO, CA – JULY 15: Pedestrians walk by a Bank of America branch office on July 15, 2015 in Novato, California. Bank of America Corp. reported a surge in second quarter earnings with profits of $5.32 billion, or 45 cents a share comapred to $2.29 billion, or 19 cents a share one year ago. (Photo by Justin Sullivan/Getty Images)The feds named Tyson, his mother Carrie Tyson (sentenced to 18 years) and Ramin Amini, currently an international fugitive, as the “leaders.” Tyson took advantage of a robust real estate market in the Charlotte area beginning in 2005. A late-comer to the real estate boom, Charlotte saw home price prices skyrocket, particularly in upscale neighborhood developments in nearby, affluent Waxhaw. Appraisers provided the initial stimulus to get things going and no-document loans gave the means to easily close real estate deals. If a buyer showed up with a good credit score, $250 and financial forms with unsubstantiated (usually bogus) information, the loans would close in days. Initially, Tyson recruited straw-buyers who had good credit ratings to purchase individual homes with aggressive (high) appraised values, would arrange a purchase from a seller at a much lower price, got a loan based on the higher appraised price and took the money from the proceeds as a “profit.” Those profits had Tyson, then 26 years old, living the high-life by driving expensive cars, living in a multimillion dollar home and throwing some outrageous parties. One of Tyson’s homes was located on ‘Strike the Gold Lane,’ which is akin to a neon sign stating ‘come arrest me!’ Moving beyond straw buyers, Tyson created financial instruments to purchase real estate to attract even bigger money, which nearly included professional boxer Floyd Mayweather. Mayweather came into town on his private jet to have a personal look but decided not to participate. However, his presence was enough to encourage others jump in. To help bridge the financing and to manage fluctuations in deal flow, Tyson resorted to ‘quick money’ by distributing large amounts of marijuana from Mexico into North Carolina. Banks shared in the blame but they paid for their sins with dollars instead of years in prison.
Big banks like Bank of America BAC +1.63%, Wells Fargo WFC +0.82% and Sun Trust funded the homes that were involved in Operation Wax House and would later make settlements with the U.S. government for their complicity. However, for the people involved as both victims of the fraud and perpetrators of it, the results have been devastating.
I spoke with Obie Chambers, who some would call the male version of TV’s “Scandal” Olivia Pope, who said, “This really hit people hard in the black community. Most of those involved were young and not sophisticated in financial transactions. They got in over their heads.” Chambers, who lives in the Charlotte area and whose company eXigency Group specializes in crisis management, was a consultant to several of the clients and accompanied many of their family members to Federal Court. “Many of those involved were good people, but their trust was misguided.” One of those was notary public Denetria Myles, 44. Insisting that she just notarized documents at the guidance of others, Myles went to trial on October 15, 2013 and was convicted 8 days later along with real estate agent Nathan Wolf. She was sentenced to a 51-month federal prison term that she began serving earlier this month. Her situation is even more difficult as she is a single mother of a school-age child and has a mother who is terminally ill.
The high profile prosecutor on the case, U.S. Attorney Anne Tompkins, left her office earlier this year and went into private practice. Before leaving, she not only oversaw most of the Operation Wax House prosecutions but was also a major player in the huge mortgage fraud settlement the U.S. had with Bank of America ($16.65 billion). Some have been critical of Tompkins’ joining a law firm, (Cadwalader, Wickersham & Taft), that had represented Bank of America in mortgage backed security dealings in the past. However, she is joining the white-collar defense section of that practice and not the financial securities and corporate law area which worked with Bank of America. I’m thinking that some of the Wax House defendants wished she was on their team!
Home prices in the Charlotte area have rebounded to 2008 levels and are projected to go even higher. However, many of those who believed in Tyson and his investment have had their lives changed forever. Victims testified at Tyson’s sentence hearing that they had taken out other loans to give money to invest and many lost their life savings. Tyson, while apologizing, insisted that he still believed his plan would have worked. He will have many years to think about how that might have happened.
“Were most of these folks guilty?” Chambers asked and then answered, “Perhaps, as the letter of the law goes, but they had a lot of help from the banks along the way. Somebody had to show them [defendants] the way.” Some of those sentenced to prison are now coming back home while others are just entering. For victims and defendants, the scars of Operation Wax House will live on for years … for some it will be a lifetime.
Read more here: http://www.charlotteobserver.com/news/local/crime/article
Formerly posted in Forbes.com July 22, 2015