The Biggest Source of Fraud

Transcription

1 The Biggest Source of Fraud Presented to Stewart Title Guaranty Company Seminar About Trends, Practices and Claims Issues By Lynn W. Wilburn, Wilburn Investigations, Inc. At Villa Milano, Columbus, OH On Friday, June 15, 2012

2 Partners/co-owners Employees Family members Sometimes those that assist from within do so through negligence, apathy, laziness or misplaced loyalty rather than intent Most frauds and losses suffered by title insurance agencies are initiated by or assisted by someone within the agency

3 Agency is looking for a closer/escrow officer Gets recommendation from former customer about a small title agency that is closing whose owner, Abad, is looking for a job Decides to investigate the possibilities Florida

4 Abad s small agency is too much responsibility, too much work, wants to close it and work for someone else Abad does, however, have some loyal clients and would like to continue with them Also the office lease Abad has can be assumed It s a deal! Abad is hired and the lease is assumed. Abad doesn t even have to move. We ll just turn his office into a branch of ours. Interview of Abad

5 Name changed Abad s book of business continues and more is added Abad s old assistant is also hired New bank account opened for branch Life is good New branch office for the agency!

6 Audit cannot find the 200K wire transfer that should have funded a transaction that Abad closed 9 months ago Software system shows the wire was received but it cannot be found in the banking information Contacted Abad who says it is an error as funds went to wrong file and says it will be corrected that day Next day, no correction has been done, manager calls Abad and is assured it will be done 14 months later

7 Still no correction done Manager calls branch but Abad is not there In fact, the assistant says that Abad s desk was cleared out last night and all personal effects are gone. this is not good And on the third day

8 Audit determines there is no overage in any file that would account for the missing 200K Abad is not answering cell or home phone Neither are the buyer, seller or realtor that were involved in the questionable transaction Crunch time

9 The purported lender that was supposed to have wired 200K never heard of the buyer, seller or Abad there was no funding The real property does exist there was a closing and it really did have a prior mortgage Surprisingly, however, the prior mortgage in that transaction was paid Also paid were fees to a short sale company and some funds to the seller Perhaps we should review the file

10 Realtor, it seems, is very busy as she is listed as the principal in 30+ investment type companies with interesting histories Buyer has a legitimate reason for not returning calls or answering written inquiries- it s hard to get mail or return calls from the penitentiary. He was under indictment at closing and plead guilty and was sentenced after closing Conviction involved his role as a real estate appraiser in mortgage fraud Seller had the same excuse, different penitentiary Who ARE these people and WHERE are they?

11 Ever the entrepreneur, Abad formed Short Sale Company (SSC) about 10 months ago (are you doing the math, yet?) Just a coincidence that SSC is getting fees from the 200K transaction Just a coincidence that buyer and seller both needed money for a criminal lawyer about the time the deal closed Just a coincidence that some of the addresses used by realtor, buyer, seller and SSC were the same (I don t believe in coincidence) Meanwhile, back to Abad

12 So far another 100K in missing funds has been identified No one has any of the money left Buyer was hit with judgments and liens after closing that included a lis pendens on the property, wiping out any recoverable equity There was a lenders policy, the underwriter will pay, but they will go after the agent who hired Abad Agent for their loss. It s doubtful the agent s E & O will pay because it was employee fraud and, no, there was no fidelity bond Of course, there s s more

13 A collective group of errors, bad decisions and negligence resulted in a 200K loss out of the agent s pocket. NONE OF THIS HAD TO HAPPEN!

14 A Bankruptcy in 2010 Multiple Judgments and liens A credit history of Charged off and Collection accounts If the agency had done a pre-hire background investigation on Abad they would have found

15 Abad was cancelled for cause The cause was fraud and failure to remit premiums Abad s old escrow account was short..gee, do you suppose that might be where some of the 200K went? A check with Abad s s former underwriter would have revealed..

16 The bankruptcy and the judgments and the liens of Abad The pending litigation that laid out the fraud Abad was accused of by the prior underwriter Even just a local search of court records would have shown..

17 The problems were a 2000K real estate fraud Remember that the agent took the recommendation of an old customer that had some problems

18 Seems there had been problems with software compatibility for almost a year that his staff didn t mention As a result, it took 9 months for the problem to surface (should have been one day) and nothing was left to recover. Agent assumed that all was well with his agency escrow account reconciliations but he did not personally review them

19 As with Maryland case, intent is to obtain equity, if any, and fees from victims Others target victims for fees promising to find a helpful lender and/or purchaser Rescue frauds take multiple forms

20 Ponzi schemes touting high returns on acquisitions of distressed properties Many of the Ponzi schemes own no real estate yet take in millions Investor frauds

21 Agent who owns multiple agencies hires Ms. Igot Cha, a closer from CA to run a branch After a few months the branch where Igot works, while profitable, was marginal so agent decides to sell it. Igot goes to him and makes an offer to purchase with the help of her sister from CA, Ibenad Teaux. He accepts the offer. The sale closes with a cashier s check payment of 250K from Igot and Ibenad with Ibenad shown as the owner and Igot as the manager Montana mess- just when you thought you d d heard them all

22 A local bank files a SAR (Suspicious Activity Report) on Igot which is picked up and investigated by the U. S. S. S. LWW gets a call from an underwriter state manager saying that a Special Agent of U.S.S.S. had called her inquiring about an agent and threatened her with Obstruction of Justice charges if she divulged the inquiry to anyone including her own company. I contact Special Agent O. Verzelous and learned that he had so much stuff he didn t know who the bad guys were After some discussion and examination of documents, the truth came out Months go by and then

23 Igot was running hundreds of thousands of dollars through her personal account which triggered the SAR The funds were all coming from her recently acquired title agency An audit revealed multiple unpaid prior liens Igot had recently purchased lakefront property for her family, expensive horses, trucks, trailers, etc. The real story

24 She took that 250K (and a whole lot more) from the branch agency escrow account before she bought it She managed that by not paying prior mortgages on deals she closed before the sale And, of course, she was still making monthly payments on the unpaid prior mortgages Oh, and remember the 250K Igot paid for the branch agency?

25 Losses in excess of 1000k (500K after recovery of available assets) ALL ON THE AGENT In addition to her former employer, Igot Cha also took her family down Her daughters lost their horses (and the trailer and the truck) She and her family lost their house Her parents (who had partnered with her in the lake property) lost their property Ibenad Teaux knew nothing of her ownership in the agency Igot purchased. Seems Igot forged her name to all documents. Ibenad lost her job, too. She d moved her family from CA to MT for the job Igot promised her. The aftermath

26 If the agent had done a background investigation on Igot when she was first hired he would have learned that Igot was on probation for a felony conviction for welfare fraud in CA She was fired from her former employment in a CA title agency for fraud If, at the time of sale of the agency, the agent had questioned why ownership went into Ibenad s name he would have learned that Igot could not get a MT insurance license because of her felony record. Again, none of this had to happen

27 It is to your advantage to minimize that opportunity. There really is safety in numbers. The more people watching the less likely a criminal act will occur Separation of duties- one who reconciles the account should not have signatory privileges. Two signature checks Theft is a crime of opportunity

28 Three way reconciliations Clear out dated funds Positive pay Check reviews for payees File reviews for questionable practices Enforced vacations Periodic updates on employees (credit, criminal, judgments, liens, litigation) Other preventive measures

29 Drastic changes in lifestyle (up or down) Family crisis (illness; death; divorce or separation; children or other family members in trouble) Financial crisis- If they can t handle their own money why would you let them handle yours? Substance abuse and/or other addictions such as gambling Desperate people do desperate things Signs of trouble in an employee or partner or co-owner owner

30 Follow the rules you have in place Educate your staff Exercise due diligence Communicate- with your employees, your customers AND your competition And the best preventive measures are

31 The Biggest Source of Fraud Presented by Lynn W. Wilburn Wilburn Investigations, Inc Post Oak, Suite R2B Houston, TX F lwilburn@wilburninvestigations.com Thanks for listening

32 The Biggest Source of Fraud Presented to Arkansas Land Title Association By Lynn W. Wilburn, Wilburn Investigations, Inc. At Peabody Hotel, Little Rock, AR On Friday, June 15, 2012