Federal authorities made a very public showing in 2010, documenting a year of reckoning for crooks prosecutors say took part in a wave of mortgage fraud and Ponzi schemes that brought down the American economy.
Many paid the price in prison time amid accusations of shady dealings during the real estate and investment boom leading up to the bubble bursting on both fronts in the United States and in Florida, one of the hardest-hit states in the nation.
Almost weekly last year, U.S. Attorney’s Offices throughout Florida announced the arrests, convictions, and sentences of dozens of defendants on charges stemming from mortgage fraud and Ponzi schemes that bilked citizens out of billions.
But with the majority of the cases stemming from fraud that occurred three to four years ago, during the salad days of the real estate and investment boom, some say trumpeting a crackdown after the fact overshadowed lapses by federal authorities that fed the climate for fraud and the ensuing meltdown.
“They closed the barn door after all the horses escaped,” says Miami defense attorney Frank Rubino, who has represented numerous clients accused of mortgage and investment fraud.
Prior to the economic meltdown, federal authorities did little to combat rampant mortgage and investment fraud in Florida, but once the economy collapsed it became easy to cherry-pick paper trails and make arrests, according to Rubino.
“It wasn’t hard to get convictions. When you have a paper trail it is like taking candy from a baby,” Rubino says. “That’s not the point. The point is: Where were they when all of this was going on?”
For three years, Florida had topped the nation in mortgage fraud, and in June a federal report said it remained so in 2009.
Days after the release of that report, the country’s top law enforcement officers announced the “largest mortgage fraud sweep in history,” with Attorney General Eric Holder and FBI director Robert Mueller announcing “Operation Stolen Dreams,” a nationwide crackdown on mortgage fraud.
The operation included more than 1,200 defendants and 485 arrests in cases which accounted for $2.3 billion in losses nationwide. Officials with the U.S. Attorney’s Offices in the southern and middle districts of Florida also took part in the operation, announcing dozens of arrests as well. Officials with both districts did not return requests for comment.
By then the U.S. Attorney’s Office Middle District of Florida had become ground zero for mortgage fraud investigations, with its Tampa field office the busiest in the state. Its caseload quadrupled from 2008 to 2009. Many suspects were put behind bars as a result of prosecutors’ efforts.
The cases ran the gamut — including convictions of attorneys, mortgage brokers, real estate investors, and even an architect.
Prosecutors also honed in on the suspected chiefs of sometimes-international Ponzi schemes authorities say bilked investors out of hundreds of millions of dollars, including the following, according to U.S. Attorney’s Office reports:
- Sarasota native Beau Diamond was sentenced to 15 years in prison last month for his role in a Ponzi scheme that bilked more than 200 investors out of $37 million.
- Lydia Cladek, of St. Augustine, was indicted in November on charges stemming from a $100 million Ponzi scheme.
- Floridian David A. Smith was extradited in November from Caicos Islands and Grand Turk on warrants stemming from charges he bilked more than 6,000 investors out of more than $200 million.
Efforts by federal authorities to tout arrests made after the real estate and investment bubble burst are nothing new in responding to scandals that anger the American public, according to University of South Florida criminologist Shayne Jones.
“They are being very vocal about it now because people are still upset,” Jones says.
There is still palpable outrage over federal bailouts of banks in the wake of the economic collapse, with a still-pervasive sentiment that no one paid for the fraud that created the climate for the meltdown, according to Jones.
“It’s an effort to reassure people they are taking these crimes seriously and not treating them lightly,” Jones says.
Mortgage fraud is a thing of the past for now, not due to law enforcement’s efforts, but because banks are not lending much, Rubino says. Rubino adds that those who would look for a shortcut to riches will always be there, and the next scam is just around the corner.
Sentences in the wake of the economic downturn have been harsher for white-collar crimes than in the past, most likely due to the scope of the collapse, according to Jones. But it remains to be seen whether that will bring caution in real estate and investment circles in the future.
“We’ll have to wait and see,” he says.
