A Judge Pulled a Gun in the Courtroom—and Then It Got Weird
“The whole trial was insane,” said one lawyer, who later reported the weapon-wielding jurist to the FBI.
JUL 16, 2022 | REPUBLISHED BY LIT: JUL 17, 2022
During a trial in West Virginia earlier this year, witnesses tell The Daily Beast, a state court judge whipped out his handgun, waved it in the air, and left it on the bench with the barrel pointing directly at the corporate lawyers who had irritated him.
Circuit Judge David W. Hummel Jr., who oversees cases in the tiny city of New Martinsville, repeatedly told The Daily Beast it never happened.
When reached by phone in March, he initially professed shock at the allegations.
On subsequent phone calls, however, his story kept changing as he claimed to recall more details about the incident.
“I did not have my 1911 at any point during that trial,”
he said then, referring to a common type of semi-automatic pistol.
“It was secreted in a drawer on the bench. I never showed my 1911 at the trial whatsoever—at any point during that trial.”
That judge is now under investigation by the state’s judiciary for violating the profession’s code of conduct, according to three witnesses now sharing information with law enforcement and official communications about the investigation reviewed by The Daily Beast.
The judge’s own staff has since told an investigator that the judge did, in fact, display his gun openly during an attorneys-only hearing and boasted about having it in his possession, according to two of those witnesses.
Hummel insisted to The Daily Beast that there was no recording of the incident that would back up these accusations, but two witnesses say the state investigator has acquired a videotape of the interaction.
“You don’t understand what a terrible victimization it is,”
said Lauren Varnado, the attorney who was standing at the podium when the judge pulled out his gun.
“It was pretty traumatic for multiple people. The whole trial was insane.”
“We have no power in this situation,”
“It was way scarier than even just a normal person on the sidewalk.
You need more power over us than you already have right now?
That’s frightening, because he could order us to do whatever.
Why would you ever need to pull out a gun?”
The judge’s show of force was the culmination of months of building tension between him and Varnado’s team of corporate lawyers.
The Daily Beast has reviewed hundreds of pages of court transcripts and spoken to several people involved.
As with many legal battles in West Virginia, it all started with fossil fuels.
“It was too stunning to even process it. My brain didn’t even process it until after the hearing concluded. I was on edge. I don’t know if it was loaded.”
Until the case settled recently, Hummel oversaw a dispute involving West Virginia landowners who sued over the royalty payments they get from the natural gas giant EQT for fossil fuels extracted from the earth hundreds of feet below their property.
But the gas company’s lawyers accused the judge of never disclosing that his parents get gas company royalties that may someday pass on to him—sparking questions about a glaring conflict of interest.
When the gas company’s lawyers sought to disqualify him, court transcripts show he grew increasingly aggravated at Varnado and her team.
At an April 2021 court hearing in which he was asked about his family’s gas interests, the transcript shows how the judge patronized EQT’s lawyers as he detailed his family tree and dismissed their concerns, ranting about how his cousin “Christy” got mad at him for not recognizing her at a wedding.
When the attempt to have higher state courts disqualify him failed, Hummel started the next court hearing in similar fashion.
“Okay. Excellent. And I’m Judge Hummel, and I have no conflicts, Supreme Court said, so here we are. And this time I don’t have to talk about my Aunt Rose’s numerals or which shoe I put on first or anything,”
he said on July 19, 2021, according to another transcript.
The eventual trial was always going to be fiercely contentious.
EQT cut its royalty payments nearly a decade ago, shortly before the energy value of the state’s natural gas production began to overtake coal.
While the state has relied heavily on the exports of coal and oil since the 1800s, natural gas from the fracking of the massive Marcellus Shale underground has the promise to enrich the state.
By the time the two-week trial started in February in New Martinsville, the locals were so angry at how the gas company had cut their royalties in recent years that EQT lawyers felt the need to be escorted by ex-CIA private security contractors, according to three members of that team.
But when lawyers on both sides were called into the century-old sandstone courthouse for a special hearing on Saturday, March 12, bailiffs at the entrance surprised the legal teams with a new rule for the day.
“Trial counsel only today,” they said, according to three witnesses who spoke to The Daily Beast on condition of anonymity, fearing potential reprisal.
Varnado’s private security guard and a paralegal were turned away.
The lawyers made their way into the courtroom on the second floor.
Once there, according to a transcript, the judge castigated the gas company’s lawyers for having private guards, noting that if there were any concerns about safety,
“I promise you, I’ll take care of them.”
“We were never told these folks were security until most recently,”
the judge said, according to a court transcript.
“I got this man here carrying a man purse, which I make fun of him every damn day for wearing such a sissy-ass contraption. And I hear he has blood coagulant. I have blood coagulant up here too, and I’ve got lots of guns. Like, bigger ones too.”
Hummel then pulled out a black handgun from an over-the-belt leather holster beneath his robe, and started waving it around the room, according to Varnado and another person in the room.
Hummel then put it down on his wooden desk, known as a judge’s bench, and left the barrel pointing at Varnado, her New York law partner David R. Dehoney, and their local West Virginia attorney Jennifer Hicks.
The gun stayed there for the rest of the hearing. When the attorneys were directed to negotiate in a private room, they found the handgun still waiting for them when they returned. When lawyers had to approach the judge, the resting gun remained pointed at their faces.
“It’s just a violation of basic gun safety, having it out like that pointing at people,” Varnado said. “It was too stunning to even process it. My brain didn’t even process it until after the hearing concluded. I was on edge. I don’t know if it was loaded.”
Indeed, pointing a firearm at anything but a target violates the National Rifle Association’s primary rule on gun safety, which is to keep a barrel pointed away from people at all times. And the judge seems to have broken a second rule of safe gun handling, which is to check whether a firearm’s chamber is empty and clear of ammunition—then say so out loud.
In the days after the hearing, Varnado reached out to the FBI to report what happened. But she decided to seek help from the feds 100 miles away in Pittsburgh, concerned that local law enforcement might be untrustworthy given the judge’s position of power and influence.
Varnado still feels confident that was the right move. When The Daily Beast reached out to Wetzel County Sheriff Michael L. Koontz, whose deputies provide security outside the courthouse, the sheriff remembered that a special hearing happened that Saturday morning—but denied any knowledge about the judge pulling out the gun.
However, two sources with direct knowledge say a sheriff’s deputy who was in the courtroom that day has since confirmed to the state investigator that the judge brandished his pistol.
When reached by phone a few weeks after the episode, Hummel first denied anything remarkable ever occurred.
“There is no incident… I absolutely, categorically deny I had a gun that day in the courtroom,” he said. “It was just me and the attorneys. I had no reason to have a firearm that day… I’ve never shown a gun in my courtroom to anybody. I don’t want them to know that I have it. I do not display my firearm at any time during trial.”
“My job is not to protect anyone with firearms,” he said. “That’s what my bailiffs and deputy sheriffs are for.”
Minutes later, the judge called back and said he now recalled having a holstered gun on him beneath his robe during the trial the previous week.
But it wasn’t the 1911 pistol, he said.
It was a long, classic-looking revolver that hails from the days of the Wild West.
“I wore the Colt Peacemaker,”
“The Peacemaker never ever came out of the holster during that trial.”
When the judge called back a third time, he acknowledged showing something to the attorneys in the courtroom that day.
But he said it wasn’t a gun.
“I did pull out a small, red first aid kit. But it was casual. I did show her a foiled packet, and said this is blood coagulant. We have preparations for active shooter situations,” he said.
In April, a spokeswoman with the Supreme Court of Appeals of West Virginia told The Daily Beast that she was not aware of the gun incident.
And records showed that Hummel had not been the subject of an admonishment or formal statement of charges.
But in the weeks since, Judicial Investigation Commission of West Virginia investigator David Hudson has been gathering evidence about the incident, asking witnesses to describe the firearm and how they felt about it being displayed by the judge, according to communications reviewed by The Daily Beast.
In a signed affidavit submitted to the investigator, Varnado, who hails from Texas, described the judge’s gun as a “Colt 45,” a widely recognized pistol otherwise known as a 1911.
The judge, his court clerk, a secretary, and a court reporter have all submitted sworn affidavits describing the events that day to the investigator, court reporter Holly A. Kocher told The Daily Beast on Wednesday.
Since March, the FBI’s Pittsburgh field office has repeatedly declined to confirm that a special agent there has been assigned to look into the incident. The judge did not respond to requests for comment on Wednesday.
The state judiciary, citing policy, declined to provide details about the ongoing ethics investigation.
But its staff pointed to its website, which indicates that judges who violate the rules face a one-year suspension.
Akerman’s Lawyer Travers Clark On A Saturday Foreclosure Filin’ Bonus
Morrison, a homeowner represented by the local legal aid society, loses his case when dismissed WITH PREJUDICE.
STIPULATION OF VOLUNTARY DISMISSAL PURSUANT TO FED. R. CIV. P. 41(a)(1)(A)(ii)
Pursuant to Fed. R. Civ. P. 41(a)(1)(A)(ii), Plaintiff James Morrison, Jr. stipulates that this action shall be dismissed with prejudice as to Defendants Carrington Mortgage Services LLC, Wilmington Savings Fund Society, FSB as Trustee of ACM Stanwich Alamosa 2020 Trust and Professional Foreclosure Corporation of Virginia and that each party to this Stipulation shall bear their own costs and attorney fees incurred in this action. Pursuant to Kokkonen v. Guardian LifeInsurance Co. of America, 511 U.S. 375 (1994), this Stipulation of Dismissal explicitly reserves in this Court jurisdiction to enforce the terms of the Parties’ Settlement Agreement.
As evidenced by the endorsements herein, Defendants consent to the dismissal provided for herein.
DATED this 13th day of March, 2022.
/s/ Jessica W. Thompson
Jessica W. Thompson (VSB # 75514)
CENTRAL VIRGINIA LEGAL AID SOCIETY, INC.
101 W. Broad Street, Suite 101
Richmond, VA 23220
Telephone: (804) 200-6037
Facsimile: (804) 864-8794 Email: email@example.com Counsel for Plaintiff
SEEN AND AGREED:
/s/ J. Travers Clark
James Travers Clark (VSB # 94706)
750 Ninth Street, N.W., Suite 750
Washington, D.C. 20001
Telephone: (202) 393-6222
Facsimile: (202) 393-5959 Email: firstname.lastname@example.org
Counsel for Carrington Mortgage Services LLC and Wilmington Savings Fund Society, FSB
as Trustee of ACM Stanwich Alamosa 2020 Trust
/s/ Malcolm B. Savage, III
Malcolm Savage, Esq. (VSB # 91050)
LOGS Legal Group, LLP
10021 Balls Ford Road, Suite 200
Manassas, VA 20109
Telephone: 703-449-20109 Email: email@example.com
Counsel for Professional Foreclosure Corporation of Virginia
Defense Counsel for James Morrison, Jr.
LIV would have transcribed this removal notice, but for it being modified to an image PDF version by the Virginia Federal Court.
Just Call Me Trav
The internal memo from @uscourts has gone viral
U.S. District Court
Eastern District of Virginia – (Richmond)
CIVIL DOCKET FOR CASE #: 3:22-cv-00013-DJN
|Morrison v. Carrington Mortgage Services LLC et al
Assigned to: District Judge David J. Novak
Cause: 28:1441 Notice of Removal -Violation of Real Estate Settlement Procedure Act
|Date Filed: 01/05/2022
Date Terminated: 03/16/2022
Jury Demand: None
Nature of Suit: 220 Real Property: Foreclosure
Jurisdiction: Federal Question
|James Morrison, Jr.||represented by||Jessica Wagner Thompson
Central Virginia Legal Aid Society
229 N Sycamore Street
Petersburg, VA 23803
ATTORNEY TO BE NOTICED
|Carrington Mortgage Services LLC||represented by||James Clark
750 Ninth Street, NW
Washington, DC 20001
ATTORNEY TO BE NOTICED
|Wilmington Savings Fund Society, FSB as Trustee of ACM Stanwich Alamosa 2020 Trust||represented by||James Clark
(See above for address)
ATTORNEY TO BE NOTICED
|Professional Foreclosure Corporation of Virginia||represented by||Malcolm Brooks Savage , III
Shapiro & Brown, LLP
501 Independence Parkway
Chesapeake, VA 23320
Fax: (703) 449-5850
ATTORNEY TO BE NOTICED
|Date Filed||#||Docket Text|
|01/06/2022||2||Civil Cover Sheet re 1 Notice of Removal, by Carrington Mortgage Services LLC. (Clark, James) (Entered: 01/06/2022)|
|01/18/2022||3||ANSWER to Complaint by Carrington Mortgage Services LLC, Wilmington Savings Fund Society, FSB as Trustee of ACM Stanwich Alamosa 2020 Trust.(Clark, James) (Entered: 01/18/2022)|
|01/24/2022||4||ORDER Setting Pretrial Conference – Initial Pretrial Conference set for 2/17/2022 at 02:00 PM in Richmond Telephonically before District Judge David J. Novak. Signed by Patrick F. Dillard with permission of District Judge David J. Novak on 1/24/2022. (cgar) (Entered: 01/24/2022)|
|03/09/2022||5||NOTICE of Appearance by Malcolm Brooks Savage, III on behalf of Professional Foreclosure Corporation of Virginia (Savage, Malcolm) (Entered: 03/09/2022)|
|03/13/2022||6||STIPULATION of Dismissal by James Morrison, Jr. (Thompson, Jessica) (Entered: 03/13/2022)|
|03/16/2022||7||ORDER pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii), the Court hereby DISMISSES WITH PREJUDICE all claims by Plaintiff against Defendants.
Each party shall bear their own costs and attorney fees incurred in this action.
The Court retains jurisdiction to enforce the terms of the Parties’ Settlement Agreement pursuant to Kokkonen v. Guardian Life Insurance Co. of America, 511 U.S. 375 (1994).
This case is now CLOSED.
Signed by District Judge David J. Novak on 3/16/22. (adun, )
Who Needs Reddit for Share Trading Tips and Tricks? Not this Broker
It’s possibly a big mistake, as Virginia Federal Judge Claude Hilton signed an order and dated it Dec 13, 2011. Its 2021 last time we looked.
“As the date of the announcement approached, Clark allegedly took aggressive steps to fund purchases of additional out-of-the-money CEB options, including liquidating his wife’s IRA, nearly maxing out a line of credit and taking out a loan on his car.”
SEC Obtains Judgment Against Former Corporate Controller for Tipping Brother-In-Law Ahead of Merger Announcement
Litigation Release No. 25264 / November 15, 2021
Securities and Exchange Commission v. Christopher Clark and William Wright,
No. 1:20-cv-01529 (E.D. Va. filed December 11, 2020)
DEC 13, 2021 | REPUBLISHED BY LIT: DEC 14, 2021
On October 18, 2021, the U.S. District Court for the Eastern District of Virginia entered a final consent judgment against William D. Wright of Arlington, VA, the former Corporate Controller of CEB Inc., whom the SEC had charged with insider trading.
The SEC’s complaint, filed on December 11, 2020, alleged that Wright learned about an impending acquisition of his company. As alleged, Wright tipped non-public information concerning the acquisition to his brother-in-law, Christopher J. Clark of Arlington, VA. Based on the information tipped by Wright, Clark allegedly purchased highly speculative, out-of-the-money call options. The complaint further alleged that, after the public announcement of the acquisition of CEB for $2.6 billion, Clark liquidated his CEB options and made profits of over $240,000.
Without admitting or denying the allegations in the complaint, Wright consented to a final judgment ordering a permanent injunction against future violations of the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; ordering a civil monetary penalty of $240,934; and barring Wright from serving as an officer or director of a public company for two years.
In a related administrative proceeding based on the entry of the final consent judgment, on November 12, 2021, the SEC issued an order barring Wright from appearing or practicing before the SEC as an accountant pursuant to Commission Rule of Practice 102(e)(3)(i), with the right to reapply after two years.
The SEC’s ongoing litigation against Clark is being handled by Daniel Maher, Olivia Choe, John Lucas, and Sarah Hall, under the supervision of David Gottesman.
The 10 Sins
SEC Obtains Judgment Against Former Corporate Controller for Tipping Brother-In-Law Ahead of Merger Announcement
SEC Charges Corporate Controller and His Brother-In-Law with Insider Trading Ahead of Merger Announcement
Litigation Release No. 24982 / December 11, 2020
No. 1:20-cv-01529 (E.D. Va. filed December 11, 2020)
DEC 11, 2020 | REPUBLISHED BY LIT: DEC 14, 2021
The Securities and Exchange Commission today charged the former Corporate Controller of CEB Inc. and his brother-in-law with insider trading in advance of a public announcement about CEB’s acquisition for $2.6 billion. The alleged insider trading scheme generated profits of $296,000.
According to the SEC’s complaint, William D. Wright learned non-public information about the acquisition of CEB while serving as a senior accounting officer of the company. In the months leading up to the merger announcement, the complaint alleges, Wright repeatedly tipped his brother-in-law, Christopher J. Clark, about the impending acquisition.
The complaint alleges that based on the information tipped by Wright, Clark purchased highly speculative, out-of-the-money call options and directed his son to purchase the same options in the son’s account.
As the date of the announcement approached, Clark allegedly took aggressive steps to fund purchases of additional out-of-the-money CEB options, including liquidating his wife’s IRA, nearly maxing out a line of credit and taking out a loan on his car.
The options Clark allegedly purchased were so speculative that Clark – alone or with his son – were the only people to buy those options on all but one of the days they traded.
As alleged, Clark and his son made profits of more than $243,000 and $53,000, respectively.
The SEC’s complaint charges Wright and Clark with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctions, civil penalties, and as to Wright, a bar from serving as an officer or director of a public company.
The SEC’s investigation was conducted by Paul Kim, John Lucas, and Deborah Tarasevich with assistance from John Rymas of the SEC Market Abuse Unit’s Analysis and Detection Center, who uncovered the suspicious trading.
The investigation was supervised by Joseph G. Sansone, Chief of the Market Abuse Unit. Daniel Maher and Olivia Choe are leading the SEC’s litigation. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
Mortgage Fraud: SunTrust Bought Its Way Out Of Jail. The Staff Weren’t So Fortunate.
This Criminal Appeal re Mortgage Fraud by Staff at SunTrust Bank shows the selective nature of those chosen by the Judiciary to be convicted.
United States v. Raza, 876 F.3d 604 (4th Cir. 2017)
Compare the following appeal with the articles that follow immediately after, namely the SunTrust settlement and the distressed Homeowner pursuing justice and meaningful relief from our Judiciary.
NOV 20, 2017 | REPUBLISHED BY LIT: AUG 2, 2021
This Criminal Appeal re Mortgage Fraud by Staff in the Loan Department (Mortgages) at Suntrust Bank shows the selective nature of those chosen by the Judiciary to be convicted and sent to jail. The Executives, the responsible Bankers who oversee the staff and department and sign off on financial statements under the penalty of perjury were never brought before a jury for their crimes. Rather, a cash settlement was reached to drop the criminal charges.
That Executive Bankers are not criminally prosecuted is unacceptable. However, America sat back and said, “it’s par for course, we all know corruption, money and power can prevail over the rule of law.” LIT suggests that attitude has to change if you, the people, want change.
KING, Circuit Judge:
In February 2016, the defendants in these proceedings—Mohsin Raza, Humaira Iqbal, Farukh Iqbal, and Mohammad Ali Haider—were convicted by a jury in the Eastern District of Virginia of the offenses of wire fraud and conspiracy to commit wire fraud.
Those crimes were predicated on a fraudulent mortgage lending scheme centered at the Annandale branch of SunTrust Mortgage in Fairfax County, Virginia.
The defendants have appealed, maintaining that the trial court fatally undermined their convictions by giving erroneous instructions to the jury. As explained below, we reject the contentions of error and affirm.
The fraudulent mortgage lending scheme underlying this prosecution touched not only SunTrust Mortgage (the subsidiary entity), but also SunTrust Bank (the parent entity) as the fraud scheme’s primary victim. Because the distinctions between those banking entities are immaterial in these appeals, we refer to them jointly as “SunTrust.”
On April 23, 2015, a federal grand jury in Alexandria, Virginia, returned a seven-count indictment against the defendants—who were former employees of SunTrust’s Annandale branch.
The indictment’s first count charged them with conspiracy to commit wire fraud affecting a financial institution, in contravention of 18 U.S.C. § 1349.
Counts 2 through 7 made substantive allegations of wire fraud affecting a financial institution, in violation of 18 U.S.C. § 1343.
The substantive offenses were interposed against defendants Raza and Farukh Iqbal (Count 2); Raza and Humaira Iqbal (Counts 3 and 5); Raza alone (Counts 4 and 6); and Raza and Haider (Count 7).
The indictment against the defendants is found at J.A. 27-40. (Citations herein to “J.A. ––––” refer to the contents of the Joint Appendix filed by the parties in these appeals.)
The wire fraud conspiracy offense in Count 1 of the indictment was alleged as a violation of section 1349 of Title 18 of the United States Code, which provides, in pertinent part:
Any person who conspires to commit [an] offense under this chapter [including 18 U.S.C. § 1343 ] shall be subject to the same penalties as those prescribed for the offense [that is, § 1343 ], which was the object of the … conspiracy.
The substantive wire fraud offenses in Counts 2 through 7 of the indictment were alleged as violations of section 1343 of Title 18 of the United States Code, which provides, in pertinent part:
Whoever, having devised … [a] scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire … communication in interstate … commerce, any writings … for the purpose of executing such scheme or artifice, shall be [punished as provided by law]. If the violation … affects a financial institution [the permissible penalties are enhanced].
The fraud scheme underlying the indictment involved a total of twenty-five mortgage loans made by SunTrust from May 2006 through February 2007.
Pursuant thereto, the defendants prepared fraudulent mortgage loan applications for prospective SunTrust borrowers.
The false information contained in the loan applications underlying the indictment included, inter alia, false employment claims, inflated incomes, and overstated assets.
As a result, SunTrust made twenty-five mortgage loans on thirteen properties located in various cities and counties in eastern Virginia.
The general statute of limitations for federal criminal offenses is five years. See 18 U.S.C. § 3282(a).
No such defense was interposed in this prosecution, in that none was available. See id.§ 3293(2) (establishing ten-year limitations period for offense of wire fraud affecting a financial institution).
The “manner and means of the conspiracy” were described in paragraphs 11-15 of Count 1 of the indictment as follows:
• The defendants prepared false mortgage loan applications for prospective borrowers at SunTrust. They well knew that the loan applications contained false material information, such as inflated incomes, inflated assets, reduced liabilities, and statements indicating that prospective borrowers intended to use the subject properties as their primary residences.
• To support false information contained in the loan applications, the defendants obtained and prepared multiple false documents, such as counterfeit earning statements for prospective borrowers and sham letters from accountants.
• Raza, as a loan officer at SunTrust, submitted false loan applications prepared by him and Humaira Iqbal to SunTrust underwriters. Farukh Iqbal and Haider, as loan officers at SunTrust, submitted additional false loan applications to those underwriters.
• By submitting false loan applications and false documents to SunTrust, the defendants caused SunTrust to make mortgage loans to the borrowers. The defendants thereby caused SunTrust to fund fraudulent mortgage loans on at least thirteen properties in eastern Virginia.
The substantive wire fraud offenses in Counts 2 through 7 realleged and incorporated the foregoing as the “scheme to defraud” underlying those six charges.
The trial of the defendants was conducted in Alexandria in late January and early February of 2016. To understand those proceedings, a brief explanation of the relationships between the defendants and their responsibilities at SunTrust is appropriate.
During the relevant time frame, defendant Raza managed SunTrust’s Annandale office. Raza’s wife, defendant Humaira Iqbal, worked as Raza’s personal assistant.
Humaira’s brothers, defendants Farukh Iqbal and Haider, worked for Raza as loan officers.
Each of the defendants performed loan officer duties during the fraud scheme.
The SunTrust loan officers assisted prospective borrowers in obtaining residential mortgages and refinancing existing mortgages. During a consultation with such a loan officer, a prospective borrower would provide information relating to, inter alia, the borrower’s income, employment, and assets.
The loan officer utilized that information to prepare the prospective borrower’s mortgage loan application.
In preparing an application, the loan officer would select the type of loan that SunTrust should consider for approval. The different types of SunTrust loans had distinct interest rates and separate requirements with respect to supporting evidence.
For example, pursuant to SunTrust guidelines, a “full document” loan required supporting documents corroborating the loan applicant’s income, employment, and assets.
On the other hand, a “stated income, stated asset” loan required only those documents necessary to verify the applicant’s employment for the prior two years.
After completing a loan application, the loan officer forwarded it to a SunTrust underwriter in Richmond for review and possible approval.
The underwriter would sometimes conditionally approve a loan application, subject to the bank’s receipt of additional supporting documents. If the loan officer and the applicant thereafter fulfilled the specified conditions—for example, by providing the underwriter with the applicant’s pay stubs or bank statements—the loan application would be approved for closing.
SunTrust would then fund the loan by wiring money from Georgia to a bank account in Virginia. Following the loan closing, SunTrust paid a commission to the loan officer.
The prosecution’s case-in-chief, which encompassed five trial days, consisted of four categories of evidence. First, the prosecutors called two coconspirators who explained the wire fraud conspiracy and the fraud scheme.
Next, the prosecution presented testimony from the SunTrust borrowers involved in the mortgage loans underlying the wire fraud offenses.
Third, other SunTrust borrowers were called to buttress the conspiracy evidence and to provide evidentiary support for the fraudulent practices underlying the wire fraud scheme.
Finally, a SunTrust official explained the significance to SunTrust of the misrepresentations on the pertinent loan applications and the risks those misrepresentations posed to the bank.
Rina Delgado worked as a loan officer at SunTrust’s Annandale branch during Raza’s tenure as the branch manager.
She described a fraud scheme that was largely overseen by Raza and his wife Humaira Iqbal. As explained by Delgado, either Raza or Humaira reviewed each loan application originated at Annandale before it was submitted to the SunTrust underwriters. Raza and Humaira would check the prospective borrower’s income, assets, and liabilities, seeking to ascertain whether the applicant was qualified for SunTrust mortgage loans.
If an applicant’s income was insufficient, Raza and Humaira would sometimes have Delgado inflate the applicant’s income on the loan application.
Delgado described in detail how the defendants used a series of false representations and fraudulent documents to circumvent SunTrust’s loan requirements. She identified an incident when Humaira Iqbal needed a landlord to verify that a loan applicant was paying rent.
Humaira had Delgado impersonate the applicant’s landlord over the phone and falsely confirm to a SunTrust underwriter that the applicant was current on his rental payments. In a similar vein, Farukh Iqbal and Haider asked Delgado to secure fraudulent accounting records to verify the assets shown on pending loan applications.
Delgado responded by providing Farukh with false bank statements that were used to further the scheme.
Delgado pleaded guilty in federal court in 2013 to an information that charged a wire fraud conspiracy offense. Pursuant to her plea agreement with the United States Attorney, she cooperated with the prosecutors. Delgado was sentenced to prison for her involvement in the fraud conspiracy.
Another key prosecution witness concerning the conspiracy offense was Ranjit Singh—a tax preparer in northern Virginia.
In 2015, Singh confessed to the FBI that he had manufactured and delivered false tax and payroll documents to the defendants.
Singh cooperated with the FBI and the prosecutors and was given immunity.
In 2006 and 2007, Singh sold false pay stubs and false W-2 forms to Farukh Iqbal and Haider. Singh knew that those defendants were SunTrust loan officers and that the false documents would be used to help loan applicants qualify for SunTrust mortgage loans.
In carrying out the fraud scheme, Farukh and Haider provided Singh with the identities of loan applicants, the names of purported employers, employment dates, and salaries. Singh used that information in his tax and payroll programs to generate false documents that he provided to loan officers.
Singh produced a spreadsheet at trial—introduced as Government’s Exhibit 50B—that identified the false documents he had prepared in connection with the fraud scheme. See J.A. 2153-61. Several spreadsheet entries corresponded with false documents that supported phony loan applications prepared by the defendants and used in furtherance of the fraud scheme.
In May 2006, Silvana Rosero obtained $437,000 in mortgage loans from SunTrust to purchase residential real estate in Occoquan, Virginia. A wire transfer of those loan proceeds from a SunTrust account in Atlanta to a BB&T account in Richmond formed the basis for the wire fraud charge in Count 2 against Raza and Farukh Iqbal. Rosero’s loan application—prepared by Farukh—reflected that Rosero earned $14,000 per month as an operations manager at Horizon Mortgage.
Her SunTrust loan file contained a W-2 form showing that Rosero had made $155,000 the previous year, and the file contained salary payment statements supporting those earnings.
Those false documents bore the name of Ranjit Singh, who confirmed that the phony documents had been prepared by him.
Rosero testified that her SunTrust loan application—and its supporting documents—misrepresented her employment and vastly overstated her income.
Rosero also confirmed that she had not provided Farukh with the false information and fraudulent documents and had never met Singh.
In June 2006, a borrower named Leslie Lamas obtained $365,000 in mortgage loans from SunTrust to purchase a residential property in Annandale. A wire transfer of those loan proceeds from a SunTrust account in Atlanta to a bank in Fairfax, Virginia, formed the basis for the wire fraud charge in Count 3 against Raza and Humaira Iqbal.
Lamas obtained her loans from SunTrust with the assistance of Humaira, although Raza was the SunTrust loan officer identified on the Lamas loan application. The application reflected that Lamas earned $9,540 per month, and her SunTrust loan file contained a false earnings statement—prepared by Ranjit Singh—that corroborated her income.
Lamas testified, however, that her income was not nearly that high when she obtained her SunTrust loans. Furthermore, she had not provided Humaira with any supporting documents to that effect.
In June 2006, Reynaldo Valdez obtained $414,000 in SunTrust mortgage loans to purchase a home in Fairfax. A wire transfer of those loan proceeds from a SunTrust account in Atlanta to a bank in Fairfax formed the basis of the wire fraud charge in Count 4 against Raza.
Valdez’s loan application at SunTrust—prepared and submitted with Raza’s assistance—reflected that Valdez was a practicing dentist, that he earned $11,580 per month, and that he had $68,000 in the bank.
His SunTrust loan file contained a bank statement and an earnings statement supporting those false assertions. Valdez confirmed at trial that he was not a dentist. He actually worked in his sister’s medical office doing clerical and maintenance work.
Valdez admitted that his SunTrust loan application vastly overstated his income and assets, and that he had not provided the false documents found in his SunTrust loan file . Those documents—a false earnings statement and a false W-2 form—had been prepared by Ranjit Singh.
In July 2006, a borrower named Harwinder Singh obtained $470,000 in SunTrust mortgage loans—in his wife’s name—to purchase a residence in Ashburn, Virginia. A wire transfer of those loan proceeds from a SunTrust account in Atlanta to a bank in Fairfax formed the basis for the wire fraud charge in Count 5 against Raza and Humaira Iqbal.
Humaira—working with Raza—had assisted Harwinder Singh in completing the SunTrust loan application.
Harwinder overstated his wife’s income at the urging of Humaira and his realtor. The loan application reflected that Mrs. Singh worked as a systems engineer at Orberthur Systems, earned $14,825 per month, and had $45,000 in a Wachovia Bank. Her loan file contained earnings and bank statements corroborating those false numbers. Mrs. Singh was actually a quality technician at Orberthur Systems and earned only $25,000 per year.
Harwinder Singh and his spouse had never banked with Wachovia, and neither of them gave Humaira any false documents.
In July 2006, Santos Valdez-Mejia obtained $405,000 in SunTrust mortgage loans on a residential property in Alexandria. A wire transfer of those loan proceeds from SunTrust in Atlanta to a bank in Fairfax formed the basis for the wire fraud charge in Count 6 against Raza.
The Valdez-Mejia loan application, prepared for him by Raza, reflected that Valdez-Mejia earned $9,875 per month and that he worked as an area manager for a restaurant chain. His SunTrust loan file contained false earnings statements prepared by Ranjit Singh. When Valdez-Mejia applied for his SunTrust mortgage loans, he was actually working hourly wage jobs—as a cook and as a manual laborer.
Valdez-Mejia confirmed at trial that his income was substantially less than $9,875 per month. He had never advised Raza that he worked as an area manager for a restaurant or that he earned such a monthly income.
In February 2007, Zahoor Hashmi obtained $387,000 in SunTrust loans to refinance a mortgage on an Alexandria residential property. A wire transfer of those loan proceeds from a SunTrust account in Atlanta to a bank in Fairfax formed the basis for the wire fraud charge in Count 7 against Raza and Haider. Hashmi had secured his initial mortgage loan in 2005 from another lender. He thereafter sought to refinance with SunTrust because he was behind on his bills.
Hashmi’s refinancing application—prepared by Haider—falsely indicated that Hashmi was vice-president of a business called AA Motors. Hashmi had never worked at AA Motors, and he had not told Haider otherwise. His SunTrust loan file contained a false pay stub prepared by Ranjit Singh.
The prosecution presented additional conspiracy and fraud scheme evidence by calling several other former SunTrust borrowers.
Francy Castillo had obtained mortgage loans from SunTrust in 2006. Her loan application—prepared by Raza—falsely reflected that Castillo was president of a company called NGDC, earned a monthly salary of $17,000, and had $100,000 in a Wachovia bank.
Castillo confirmed at trial that, when she obtained her SunTrust loans, she was actually working two hourly jobs—as a waitress and as a caretaker.
Castillo had never worked for NGDC, she earned substantially less than $17,000 per month, and she never had $100,000 in any bank.
Khalid Yousaf obtained a mortgage loan from SunTrust in 2005 and refinanced just a year later. Raza handled both of Yousaf’s SunTrust loans. When he refinanced, Yousaf was working two jobs—driving a cab and operating a Dollar Store—and made about $3,000 per month. His refinancing application with SunTrust, however, reflected that he was vice-president of a business called DPP Services and earned $13,000 per month.
Yousaf had never heard of DPP Services, had never earned $13,000 per month, and had not told Raza otherwise.
Oscar Carrion testified that his wife made approximately $15,000 per year in 2006.
Her SunTrust loan application—prepared by Raza—reflected that she earned nearly that much monthly.
The loan application of Juan Pablo Yanez—prepared by Humaira—reflected that he was president of a construction company and earned more than $11,000 per month.
Yanez was actually a laborer earning hourly wages.
Jagtar Dhanoa’s SunTrust loan application—prepared by Humaira—falsely indicated he was a senior analyst at Ikon Solutions.
He was actually working as a Pizza Hut cook and as a cab driver.
Barbara Daloia, a vice-president of SunTrust’s national underwriting team in North Carolina, explained the potential consequences to SunTrust of loan applicants failing to submit accurate information on mortgage loan applications.
As Daloia explained, SunTrust sometimes contracted with investment banks to sell its originated mortgage loans by way of secondary sales agreements. Pursuant thereto, SunTrust agreed to repurchase any such loans that failed to comply with its underwriting guidelines.
Thus, if such a secondary market purchaser discovered that a SunTrust loan it had purchased had been procured by fraud, SunTrust was obliged to repurchase the fraudulent loan.
Furthermore, according to Daloia, if SunTrust sold a fraudulently procured loan and was not compelled to repurchase it, SunTrust was nevertheless exposed to the risk of default.
Daloia had reviewed all the loan files used by the prosecution at trial. She explained that, on twelve of the properties, SunTrust had made two loans simultaneously—one for eighty percent of the property’s value and the other for the remaining twenty percent. SunTrust would thus retain two separate liens on each of those properties, with a first lien being retained on the larger eighty percent loan. The second lien would be retained on the smaller loan.
Daloia explained that SunTrust would sell only the larger loan—with the first lien—and would always hold for itself the smaller loan and the second lien. Thus, in the event of a sale, SunTrust would nevertheless be exposed to the risk of the smaller loan’s default.
In sum, Daloia emphasized the significance to SunTrust of the information required on its loan applications. As she related to the jury, anything on the loan application is of importance, the loan amount, the borrower’s name, their current address, the property type, whether it was a purchase or a refinance, if they owned any other properties. All of that is important on the application.
See J.A. 657.
Daloia stressed that supporting documents were similarly important to SunTrust’s loan process—such as those required for full document loans and stated income, stated asset loans—because those documents authenticate the information on the loan application.
After the prosecution rested, the defense called three witnesses, seeking to show that the misrepresentations made on the SunTrust mortgage loan applications were not important to the bank’s loan process. The defendants also sought to prove that the fraud scheme did not present any substantial risk of injury to SunTrust. None of the defendants testified.
Terri Dougherty, a former SunTrust underwriter, described what the defense called SunTrust’s “originate-to-sell” mortgage business.
Such a business model focused on new mortgage loans and de-emphasized the collection of interest.
According to Dougherty, SunTrust aggressively sought to originate mortgage loans in order to sell them on the secondary mortgage market. SunTrust attempted to sell loans immediately after origination, before the SunTrust borrowers could default and undermine the loans’ marketability.
Dougherty believed this business model encouraged SunTrust employees to prioritize economic metrics that attracted secondary loan purchasers—such as good credit scores of borrowers—and to disregard other information on the SunTrust loan applications.
For example, Dougherty asserted that SunTrust discouraged its mortgage loan underwriters from raising red flags when loan applications contained questionable information concerning income, employment, and assets, so long as the borrowers’ credit scores were adequate.
Dougherty also maintained that SunTrust supervisors would sometimes override her decisions to defer action on loan applications and to request additional supporting documents.
The defense relied on an expert witness concerning the secondary mortgage market in an effort to bolster Dougherty’s testimony.
Robert MacLaverty opined that SunTrust’s mid-Atlantic region had engaged in reckless lending practices and approved more than ninety-eight percent of its residential mortgage loan applications during the period of the fraud scheme.
In contrast, SunTrust’s competitors approved about eighty percent of similar loan applications during that period.
MacLaverty believed that secondary market purchasers deemed credit scores of borrowers to be one of the most important economic metrics in their evaluations of loan acquisitions.
MacLaverty further opined that SunTrust’s pattern of expeditiously selling originated loans to secondary market purchasers minimized SunTrust’s exposure to the risk of borrowers defaulting on SunTrust loans.
After the parties rested and made their closing arguments, the district court instructed the jury. Several of the instructions were contested.
The jury was required to find that—as part of the scheme to defraud—the defendants had made and caused to be made materially false statements and representations to SunTrust. The defendants sought to have the court define material false statements in a subjective manner.
They argued unsuccessfully for an instruction that a materially false statement was one that “would have a natural tendency to influence or be capable of influencing a decision of the particular decisionmaker to whom it is addressed—here, the decision of SunTrust to approve and fund mortgages for the properties named in the indictment.”
See J.A. 191.
The prosecution’s proposed materiality instruction, on the other hand, was drawn in an objective context, explaining that a “statement or representation is ‘material’ if it has a natural tendency to influence or is capable of influencing a decision or action.” See id. at 153.
The court rejected the defendants’ materiality instruction and defined materiality in a manner similar to that proposed by the prosecution.
On February 3, 2016—after three days of deliberations—the jury returned its verdict. The jury convicted each of the defendants on Count 1, which charged conspiracy to commit wire fraud.
As for the wire fraud offenses, the jury convicted Raza on three of six charges. That is, Raza was convicted on Counts 3, 4, and 6.
Humaira was convicted on Count 3.
Both Farukh and Haider were convicted of a single wire fraud offense—Farukh on Count 2 and Haider on Count 7.
The court sentenced Raza to twenty-four months in prison, Humaira Iqbal to fifteen months, and both Farukh Iqbal and Haider to a year and a day.
The defendants thereafter noted these appeals. We possess jurisdiction pursuant to 28 U.S.C. § 1291. The defendants have been granted bond pending appeal.
In their appeals, the defendants jointly present three issues concerning the jury instructions. They first maintain that the court committed reversible error on two aspects of the wire fraud offense, that is, materiality and intent to defraud.
The defendants also contend that the court abused its discretion by failing to instruct the jury prior to deliberations that it had to individually assess the guilt of each defendant as to each count. No other issues concerning the conduct of the trial or the propriety of the sentences are presented.
We review de novo an appellate contention “that a jury instruction failed to correctly state the applicable law.”
See United States v. Jefferson , 674 F.3d 332, 351 (4th Cir. 2012).
In assessing the propriety of instructions, however, “we do not view a single instruction in isolation.”
See United States v. Rahman , 83 F.3d 89, 92 (4th Cir. 1996).
We are obligated to “consider whether taken as a whole and in the context of the entire charge, the instructions accurately and fairly state the controlling law.” Id. If an instruction on an offense element is improper, and if an objection was preserved, we review for harmless error.
See Neder v. United States , 527 U.S. 1, 9, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999).
A trial court’s decision not to give a proposed instruction is reviewed for abuse of discretion and is reversible error only if it
“(1) was correct, (2) was not substantially covered by the charge that the district court actually gave to the jury, and (3) involved some point so important that the failure to give the instruction seriously impaired the defendant’s defense.”
See United States v. Bartko , 728 F.3d 327, 343 (4th Cir. 2013).
We have emphasized that a party challenging “instructions faces a heavy burden, for we accord the district court much discretion to fashion the charge.”
See Noel v. Artson , 641 F.3d 580, 586 (4th Cir. 2011).
Prior to its deliberations in this trial, the district court instructed the jury that, in order to convict a defendant on a wire fraud offense, it was obliged to find five elements beyond a reasonable doubt. That is, the prosecution had to establish the following:
(1) the scheme to defraud;
(2) the use of a wire communication in furtherance of the scheme;
(3) a material statement or omission in furtherance of the scheme;
(4) an intent to defraud;
(5) that the fraud scheme affected a financial institution.
By way of background, the federal courts have historically identified two statutory elements of a wire fraud offense. That is, such an offense can be proved if a defendant (1) devised or intended to devise a scheme to defraud, and (2) used a wire communication in furtherance of the scheme. See 18 U.S.C. § 1343.
In 1999, the Supreme Court identified a common law element of materiality as applicable to mail, wire, and bank fraud offenses.
See Neder v. United States , 527 U.S. 1, 25, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999).
Additionally, an intent to defraud has consistently been treated as an element of such fraud offenses.
See United States v. Wynn , 684 F.3d 473, 478 (4th Cir. 2012) (explaining that scheme to defraud necessarily requires proof of intent to defraud).
Finally, a fifth element of the substantive wire fraud offenses in this case—that the fraud scheme affected a financial institution—is required under § 1343 of Title 18 and must be proved if a financial institution is the alleged victim. Pursuant to § 1343, proof that the wire fraud scheme affected a financial institution justifies enhanced punishments for the person convicted. Notably, the defendants proposed an instruction that the wire fraud offenses required proof of the five elements specified above, and the court tracked that instruction in its jury charge.
We review de novo the defendants’ first contention of error, which is that the instructions failed to properly advise the jury that it had to find—on the third element of the wire fraud offense—that the defendants’ misrepresentations and false statements were subjectively material to the fraud’s victim, i.e., SunTrust.
The defendants thus maintain that the court erroneously gave the jury an objective—or “reasonable lender”—standard of materiality. The court instructed the jury on the materiality element in the following terms:
• The government was obliged to prove that “the scheme or artifice to defraud, or the pretenses, representations, or promises, were material; that is, they would reasonably influence a person to part with money or property.” See J.A. 1313.
• A particular fact is material if it “may be of importance to a reasonable person in making a decision about a particular matter or transaction.” Id. at 1315.
• “A statement or representation is material if it has a natural tendency to influence or is capable of influencing a decision or action.” Id. at 1318.
Based on those instructions, the defendants argue that the jury could have convicted them on the basis of false statements that an objective, reasonable lender might have considered material, but that SunTrust itself did not deem to be material in the circumstances.
The defendants support their contention of error with several court decisions that assess materiality in the fraud context. For example, in Neder , the Supreme Court concluded—in the context of a tax fraud prosecution—that to be material a false statement must be “capable of influencing[ ] the decision of the decisionmaking body to which it is addressed.” See 527 U.S. at 16, 119 S.Ct. 1827.
In a similar vein, we have determined, in the context of fraud against a county government, that “[t]he test for materiality of a false statement is whether the statement has a natural tendency to influence, or is capable of influencing its target.” See Wynn , 684 F.3d at 479.
The defendants contend on appeal—and argued at trial—that those decisions required that the jury be instructed on a subjective standard of materiality.
Although the federal courts have generally applied an objective test to the materiality element in fraud schemes targeting private lenders, the defendants argue that a recent Supreme Court decision—post-dating this trial—clarified the applicable standard in their favor.
More specifically, they contend that the Court, in Universal Health Services v. United States ex rel. Escobar , confirmed that the applicable test is subjective for materiality in a fraud prosecution such as theirs.
See ––– U.S. ––––, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016).
As the Court stated therein, “[u]nder any understanding of the concept, materiality looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.”
See id. at 2002 (quoting 26 Richard A. Lord, Williston on Contracts § 69:12, at 549 (4th ed. 2003) ).
Finally, the defendants contend that the trial court’s instructional error on the materiality element was prejudicial and that they were thereby denied a fair trial. They argue that materiality was the “core issue at trial,” and that the prosecution failed to prove that the misrepresentations made in the SunTrust loan applications had actually influenced SunTrust.
They point in particular to the evidence of witnesses Dougherty and MacLaverty, who opined that SunTrust had engaged in reckless lending practices and disregarded false information in loan applications.
As a consequence, according to the defendants, they would not have been convicted of wire fraud if the jury had been properly instructed on the materiality element.
The government counters that the trial court did not err in its materiality instructions and that the jury was advised of the applicable legal principles. The prosecutors contend that the Supreme Court and the courts of appeals—consistent with the instructions here—have endorsed an objective test of materiality for lender fraud such as that underlying this prosecution.
In Neder , for example, the Supreme Court endorsed an objective, reasonable person standard for materiality in the context of wire fraud against private lending institutions. See 527 U.S. at 22 n.5, 119 S.Ct. 1827.
Furthermore, we recently decided, in United States v. Wolf , that an objective test for materiality applies in the context of a bank fraud prosecution. See 860 F.3d 175, 193 (4th Cir. 2017).
The government contends that we are bound by Wolf , which constitutes circuit precedent and which was was decided well after the Universal Health decision. The prosecutors therefore see Wolf as binding on the materiality issue.
The government also argues that Universal Health did not establish a subjective test for the materiality element in a wire fraud prosecution where a private lender is the victim. Although the government depends primarily on Wolf , it also relies on Neder and a recent Ninth Circuit decision that is consistent with Wolf .
See United States v. Lindsey , 850 F.3d 1009 (9th Cir. 2017).
The Lindsey decision—which also post-dates Universal Health —ruled that an objective test for materiality applies to a wire fraud scheme targeting a private lender. Id. at 1014-17. Finally, the government contends that, if the district court somehow erred on the materiality element, the error was harmless.
We begin our discussion of the materiality element with the Supreme Court’s 1999 decision in Neder . There, the defendant had been convicted of offenses that included tax, mail, wire, and bank fraud. See Neder , 527 U.S. at 1, 119 S.Ct. 1827. The Court therefore had to address materiality-related questions concerning several types of fraud, but separated its analysis into two primary parts. Id. at 7-26, 119 S.Ct. 1827. First, it discussed the tax fraud scheme in that prosecution, which had targeted the federal government. Id. at 7-20, 119 S.Ct. 1827. Second, the Court addressed the mail, wire, and bank fraud schemes, which had victimized private lenders. Id . at 20-26, 119 S.Ct. 1827. The Court then identified different standards of materiality for those two categories of fraud. Id. at 16, 22 n.5, 119 S.Ct. 1827. Pursuant to Neder , the test for materiality in a fraud scheme targeting the federal government verges toward the subjective. Id. at 16, 119 S.Ct. 1827. A fraud scheme targeting a private lender, on the other hand, is measured by an objective standard. Id. at 22 n.5, 119 S.Ct. 1827.
The Neder Court first assessed whether it could sustain the tax fraud convictions where the prosecution had proven that the defendant falsely stated his income on his federal returns. See 527 U.S. at 7-20, 119 S.Ct. 1827. That aspect of the case concerned, inter alia, whether the trial court’s error in failing to submit the materiality issue to the jury was harmless. Id. at 15-20, 119 S.Ct. 1827. In conducting that analysis, the Court made its formulation of materiality when the federal government is a target, explaining that “a false statement is material if it has a natural tendency to influence, or [is] capable of influencing, the decision of the decisionmaking body to which it is addressed.” Id. at 16, 119 S.Ct. 1827 (internal quotation marks omitted).
The Neder materiality standard—emphasizing that the false statement must be capable of influencing the decisionmaking body to which it is addressed—is derived from earlier decisions assessing materiality issues in fraud schemes that targeted the federal government. The most notable was Kungys v. United States , where the Court addressed a materiality element in a denaturalization proceeding. See 485 U.S. 759, 769-70, 108 S.Ct. 1537, 99 L.Ed.2d 839 (1988). The applicable statute provided that the citizenship of a naturalized citizen could be revoked if naturalization had been procured by, inter alia, the “concealment of a material fact.” See 8 U.S.C. § 1451(a). The Kungys Court recognized that the federal courts had reached a “uniform understanding of the ‘materiality’ concept” in the context of “federal statutes criminalizing false statements to public officials .” See 485 U.S. at 770, 108 S.Ct. 1537 (emphasis added). The uniform understanding was that “a concealment or misrepresentation is material if it has a natural tendency to influence, or was capable of influencing, the decision of the decisionmaking body to which it was addressed.” Id . Kungys ruled that “the test of whether [the defendant’s] concealments or misrepresentations were material is whether they had a natural tendency to influence the decisions of the Immigration and Naturalization Service .” Id. at 772, 108 S.Ct. 1537 (emphasis added).
The applications of Kungys in subsequent decisions plainly show that a more focused materiality test applies to fraud schemes that target the federal government and public officials. Cf. Shaw v. United States , –––U.S. ––––, 137 S.Ct. 462, 468, 196 L.Ed.2d 373 (2016) (emphasizing that “crimes of fraud targeting the Government” constitute “an area of the law with its own special rules and protections”). More precisely, when the victim is the government, the prosecution must prove materiality by reference to the particular government agency or public officials that were targeted. See, e.g. , United States v. Camick , 796 F.3d 1206, 1217-19 (10th Cir. 2015) (reversing fraud convictions because false statements were immaterial to public decisionmaking bodies); United States v. Litvak , 808 F.3d 160, 174 (2d Cir. 2015) (vacating false statement conviction because prosecution failed to prove that misstatement was capable of influencing Treasury decision). Thus, even if the false representation might influence a reasonable person, a fraud conviction was not warranted unless the governmental decisionmaking body considered the false representation to be material. See United States v. Ismail , 97 F.3d 50 (4th Cir. 1996).
In our Ismail decision, for example, we were called upon to assess the validity of a conviction under 18 U.S.C. § 1001, involving false statements made to the FDIC as part of a scheme to defraud the government. See 97 F.3d at 52-55. The defendant argued that his statements—use of a false name and a fictitious social security number—were immaterial to the FDIC. Id. at 60-61. In vacating his conviction, we acknowledged that “[p]roviding a false name or social security number certainly could, in a given situation, be material.” Id. at 60. We explained, however, that the prosecution had failed to present any evidence bearing on the materiality of the false statements made to the FDIC. Id. As a result, Ismail was entitled to a judgment of acquittal. Id. at 62.
Although the materiality test identified by the Supreme Court in Kungys is arguably subjective, it does not apply to a fraud scheme that targets a private lender such as SunTrust. In assessing the second type of fraud discussed in Neder —fraud schemes that target private banks and lenders—the crucial issue was whether the prosecution must prove materiality as an element of the offenses of mail, wire, or bank fraud. See 527 U.S. at 20, 119 S.Ct. 1827.
In determining that Congress intended to incorporate common law materiality principles into those offenses, the Neder Court relied on the objective materiality test spelled out in the Second Restatement of Torts. Id. at 22, 119 S.Ct. 1827 n.5.
As explained therein, a fact is material if a “reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question.” Id. (quoting Restatement (Second) of Torts § 538 (1977) ).
Notably, the Neder Court declined to incorporate the common law elements of reliance and damages into the mail, wire, and bank fraud offenses. See 527 U.S. at 24-25, 119 S.Ct. 1827.
Requiring proof of those elements would have required proof of more than objective materiality, that is, proof that the misrepresentations actually influenced and harmed the target.
Consistent with Neder , our Wolf decision adhered to an objective standard of materiality for a criminal fraud offense that targeted a private lender. See Wolf , 860 F.3d at 193-96.
Wolf was convicted, inter alia, of bank fraud in violation of 18 U.S.C. § 1344. Id. at 179. He challenged evidence sufficiency, arguing that the prosecution had failed to prove that his false statements and representations were material to the lenders. Id. at 194.
Judge Traxler’s carefully crafted opinion rejected that proposition, explaining that the applicable “test for whether a false statement to a bank is material is an objective one; it does not change from bank to bank.” Id. at 193.
For that formulation, Wolf relied on a Tenth Circuit case, where the court had explained that “materiality in the bank fraud context [is] an objective quality, unconcerned with the subjective effect that a defendant’s representations actually had upon the bank’s decision.”
See United States v. Irvin , 682 F.3d 1254, 1267 (10th Cir. 2012).
The Wolf decision thus applied an objective test to the materiality element, asking whether “Wolf’s statements or representations would have been important to a reasonable lender.” See 860 F.3d at 195. In ruling that the prosecution had presented sufficient evidence to prove materiality, Wolf explained that “the kinds of misrepresentations [the defendant] made during all of these transactions would have mattered greatly to any mortgage lender.” Id. at 196.
More than fifteen years prior to Wolf —and post- Neder —our Court explained that frauds perpetrated on private lending institutions are judged according to an objective, “reasonable financial institution” standard.
See United States v. Colton , 231 F.3d 890, 903 n.5 (4th Cir. 2000).
In Colton , a jury had convicted the defendant on several counts of bank fraud after finding that he fraudulently obtained loans used to finance commercial real estate projects. Id. at 894. The prosecution presented evidence that Colton failed to disclose material information to the victimized financial institutions prior to the fraudulent transactions. Id.
Colton challenged the prosecution’s theory, maintaining, inter alia, that he had no independent duty to disclose the material information to the victimized lenders. Id. He also asserted that one of the lenders failed to perform an adequate due diligence investigation prior to entering into a financing agreement. Id. at 903.
We rejected Colton’s argument and affirmed his convictions, explaining that “the susceptibility of the victim of the fraud, in this case a financial institution, is irrelevant to the analysis.” See Colton , 231 F.3d at 903 ;
see also United States v. Brien , 617 F.2d 299, 311 (1st Cir. 1980)
(“If a scheme to defraud has been or is intended to be devised, it makes no difference whether the persons the schemers intended to defraud are gullible or skeptical, dull or bright. These are criminal statutes, not tort concepts.”).
As our Colton decision explained, Neder had declined to incorporate common law elements of fraud that would require proof of the impact of a fraud scheme on its intended victims, namely “reliance” and “damages.”
See Colton , 231 F.3d at 903 (citing Neder , 527 U.S. at 24-25, 119 S.Ct. 1827 ).
Instead, the relevant elements of wire fraud are an intent to defraud and materiality, which Colton defined as “what a reasonable financial institution would want to know in negotiating a particular transaction.” Id. at 903 n.5 (emphasis added).
Finally, in the Lindsey prosecution that was strikingly similar to this one, the Ninth Circuit reached the same conclusion we reached in Wolf and Colton . In Lindsey , the court of appeals assessed whether to affirm a bank loan officer’s convictions of wire fraud after the jury found that the officer had fraudulently procured loans from private lenders. See 850 F.3d at 1012-19.
The Lindsey prosecutors proved—as here—that the defendant used false income figures on mortgage loan applications. Id. at 1010. Lindsey argued that those false numbers were immaterial to the victim lenders, because those lenders were routinely engaged in negligent lending practices and regularly disregarded materially false information on loan applications. Id. at 1012-14.
The Ninth Circuit rejected Lindsey’s assertion that the behavior of the victimized lenders could be a defense for the defendants. See Lindsey , 850 F.3d at 1015.
As the court explained, “[a] false statement is material if it objectively had a tendency to influence, or was capable of influencing, a lender to approve a loan.”
Id. (emphasis in original).
This result was necessary because the materiality standard “is not concerned with a statement’s subjective effect on the victim, but only the intrinsic capabilities of the false statement itself.” Id. (internal quotation marks omitted).
The Lindsey court also acknowledged the broader context of lender misconduct in which that prosecution had occurred, and the court understood “the desire to see lenders shoulder responsibility for their role in the mortgage crisis of the last decade.” See 850 F.3d at 1014.
The opinion recognized, however, that adopting a subjective test of materiality would essentially grant blanket absolution to low-level fraudsters because of the widespread sins of the mortgage industry. Id. The court of appeals rejected that outcome, emphasizing that “[t]wo wrongs do not make a right, and lenders’ negligence, or even intentional disregard, cannot excuse another’s criminal fraud.” Id.
Notwithstanding the controlling import of our Wolf decision—and asking us to discount Lindsey —the defendants argue that Wolf was erroneously decided because it conflicts with Universal Health. There, the Supreme Court was tasked with assessing materiality in the context of a qui tam proceeding against a healthcare facility. See Universal Health , 136 S.Ct. at 2001-03.
The plaintiffs argued that, under the False Claims Act (the “FCA”), the healthcare facility had defrauded the government by falsely claiming that it was in compliance with state licensing requirements when it billed Medicaid. Id. at 1993.
The FCA penalizes anyone who “knowingly presents … a false or fraudulent claim for payment or approval” to the federal government. See 31 U.S.C. § 3729(a)(1)(A). Furthermore, a qui tam plaintiff may state an actionable FCA claim if she alleges that “a misrepresentation about compliance with a statutory, regulatory, or contractual requirement” is “material to the Government’s payment decision.” See Universal Health , 136 S.Ct. at 2002.
It bears noting that Wolf was decided by our Court a full year after the Universal Health decision was handed down by the Supreme Court. For whatever reason, the defendants’ contention in these appeals—that Universal Health altered our materiality analysis in the context of fraud schemes targeting lenders—was not presented in the Wolf appeal.
In evaluating materiality in the FCA context, Universal Health explained that the federal statute itself defines materiality as having “a natural tendency to influence, or be[ing] capable of influencing, the payment or receipt of money or property.” See 31 U.S.C. § 3729(b)(4).
Universal Health acknowledged some similarities between the FCA’s statutory definition of materiality and the definitions adopted by the Court in Neder and Kungys . See Universal Health , 136 S.Ct. at 2002. Explaining that the materiality requirement in Kungys “descends from common-law antecedents,” the Court resolved that it “need not decide whether [the FCA’s] materiality requirement is governed by [statute] or derived directly from the common law.” Id.
Instead, the Court explained, “Under any understanding of the concept, materiality ‘looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.’ ” Id. (internal quotation marks omitted).
The defendants’ contention of error on the materiality element apparently comes to this: They want us to utilize Universal Health to rule that the Supreme Court has clarified its earlier cases to say that materiality—in any criminal fraud context—requires proof that the false statements and misrepresentations were subjectively material.
For multiple reasons, we reject that invitation.
First, to the extent Universal Health altered the concept of materiality in fraud proceedings, it is not likely that its impact extends beyond the context of qui tam actions. And a qui tam action is a civil proceeding that protects the federal government.
The Court implicitly acknowledged that proposition in Universal Health , explaining that “[t]he [FCA’s] materiality standard is demanding. The [FCA] is not an all-purpose antifraud statute.” See 136 S.Ct. at 2003 (internal quotation marks omitted).
We reached a similar conclusion recently in United States v. Palin.
In the Palin fraud prosecution, several defendants had been convicted of health care fraud and conspiracy to commit health care fraud, in violation of 18 U.S.C. §§ 1347 and 1349. See 874 F.3d 418, 420 (4th Cir. 2017). They appealed, arguing that ” Universal Health established a new materiality standard that applies to all criminal fraud statutes, including § 1347.” Id. at 422.
Judge Motz’s opinion expressed skepticism with that assertion, recognizing that the defendants sought to “stretch Universal Health too far.” Id. at 423. Although Palin only had to decide whether Universal Health impacted the materiality element in the context of health care fraud, it specified that “we do not believe the Supreme Court intended to broadly ‘overrule’ materiality standards that had previously applied in the context of criminal fraud.” Id.
We readily agree.
Second, if Universal Health controlled our decision on materiality in these appeals, it is unclear what the impact might be.
After explaining for the unanimous Court in Universal Health that “[u]nder any understanding of the concept, materiality looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation,”
Justice Thomas emphasized that “[i]n tort law, for instance, a matter is material … if a reasonable man would attach importance to [it] in determining his choice of action in the transaction in question.”
See 136 S.Ct. at 2002-03 (internal quotation marks omitted).
The Court’s juxtaposition of those two standards suggests that they are not in tension. Put another way, an objective test of materiality does in fact “look to the effect on the likely or actual behavior of the recipient.” See id. at 2002. In those circumstances, however, the recipient is a “reasonable man … determining his choice of action in the transaction in question.” Id. at 2002-03.
Thus, in this prosecution, the recipient whose behavior the jury should assess in its materiality inquiry is a reasonable lender in SunTrust’s position—not necessarily SunTrust itself.
Third, and perhaps most important, Universal Health involved a civil fraud scheme that had targeted the federal government. In such a circumstance, the applicable materiality test verges toward a subjective standard. In Universal Health , for example, the Court suggested that evidence of a government entity’s past disregard of particular types of false statements might undermine the materiality element. See 136 S.Ct. at 2003
(“[I]f the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”).
The Lindsey court recently explained why that principle does not apply when the fraud victim is a private lender:
A single lender represents only some small part of the market for issuing mortgages . The Federal Government, by contrast, represents the entire market for issuing federal government contracts.
The weight the Government gives to a particular statutory, regulatory, or contractual requirement is analogous not to the weight an individual lender gives to a statement on its loan application, but rather the weight the entire mortgage industry gives to that type of statement. See 850 F.3d at 1017.
The Ninth Circuit appears to have barred the evidentiary use of a lender’s past lending practices on the materiality issue. In explaining that step, it related that “lending standards applied by an individual lender are poor evidence of a false statement’s intrinsic ability to affect decision making.” Id. at 1018.
Although we need not go so far, we understand the rationale for the Lindsey court’s wholesale rejection of such evidence.
In view of the foregoing, the district court did not err in failing to require the misrepresentations in the SunTrust loan applications to be material to SunTrust as the fraud victim.
In fact, the correct test for materiality—as the district court recognized—is an objective one, which measures a misrepresentation’s capacity to influence an objective “reasonable lender,” not a renegade lender with a demonstrated habit of disregarding materially false information.
In light thereof, the challenged instructions on the materiality element were not erroneous.
If the trial court somehow misstated the applicable principles concerning materiality, that error would be entirely harmless.
The evidence established that certain types of loans required supporting documents verifying the various loan applicants’ income, employment, and assets. The defendants went to great lengths to obtain those documents, seeking out and purchasing fraudulent W-2s and pay stubs from a reprobate tax preparer.
The defendants then repeatedly mischaracterized the loan applicants’ qualifications.
By way of example, Reynaldo Valdez walked into SunTrust’s Annandale branch a custodian in a medical office, but left as a licensed medical professional.
Jagtar Dhanoa understood that he cooked pizzas for Pizza Hut. He was identified on SunTrust loan documents as a “senior analyst” at Ikon Solutions.
The defendants ask us to believe that those ludicrous misrepresentations are meaningless, i.e., that SunTrust would have funded Valdez’s and Dhanoa’s loans in any event.
If that were the case, why make such misrepresentations? Why surreptitiously purchase and submit fraudulent documents?
Barbara Daloia, who stressed the importance of accurate information being reflected on all loan applications, confirmed the obvious. SunTrust would not have funded the loans had the defendants painted an accurate picture of the applicants’ qualifications.
By way of their second contention of error, the defendants maintain that they are entitled to appellate relief because the district court erroneously instructed the jury on the element of intent to defraud. The court told the jury, inter alia, that it had to find that the defendants acted “knowingly and with the intention … to deceive or to cheat.”
See J.A. 1317.
The defendants contend that the court’s use of the disjunctive “or” in that instruction “erroneously allowed conviction for wire fraud based just on intent to deceive without an intent to deprive SunTrust of anything of value.”
See Br. of Appellants 19.
The defendants argue that this error was also prejudicial, in that a properly instructed jury would have found them not guilty, because there was little or no risk to SunTrust if the loans went into default.
The government counters that the intent to defraud instructions—viewed in context—adequately advised the jury that it had to find that the defendants intended to deprive SunTrust of something of value. They point to aspects of the court’s charge that indicated the scheme had to entail losses to SunTrust.
For example, the jury was advised that it had to find that the defendants’ false statements “would reasonably influence a person to part with money or property.”
See J.A. 1313.
The prosecution was required to prove that the fraud scheme was a “deliberate plan of action or course of conduct by which someone intends to deceive or to cheat another or by which someone intends to deprive another of something of value.” Id. at 1314.
And the jury had to find that the defendants acted with the “specific intent” to defraud, i.e., “with the bad purpose either to disobey or disregard the law.” Id. at 1318.
If the trial court somehow erred in its intent instructions, however, the government again asserts that the error was harmless.
As the prosecution emphasizes, the “entire case was about the defendants submitting false loan applications and supporting documents on behalf of clients to obtain mortgage loans. There was no evidence of an intent to deceive [SunTrust] for any other purpose.” See Br. of Appellee 45-46.
Because the defendants maintain that the applicable law was erroneously set forth in the intent instructions, our review is de novo. We addressed a similar contention in Wynn, the case on which the defendants primarily rely.
The trial court in Wynn had instructed that the intent element required a “specific intent to deceive or cheat someone, usually for personal financial gain or to cause financial loss to someone.”See 684 F.3d at 477.
The defendant took umbrage on appeal with the word “usually,” arguing that its use allowed the jury to convict based solely on an intent to deceive the victim. Id. He maintained that the intent instruction was fatally erroneous because the prosecutors had to show more than “mere deception.” Id. The government had to prove, Wynn argued on appeal, both intent to deceive and intent to harm. Id.
We agreed that the government had to prove more than mere deception.
As Judge Niemeyer’s opinion explained, “[t]o be convicted of … wire fraud, a defendant must specifically intend to lie or cheat or misrepresent with the design of depriving the victim of something of value.”
See Wynn , 684 F.3d at 478. The Wynn decision carefully evaluated the pertinent instructions, which had explicitly advised that the jury had to find the defendant “acted with the intent to defraud.” Id.
The trial court had also instructed that
a “scheme to defraud includes any plans or course of action intended to deceive or cheat someone out of money or property,”
and that intent to defraud means
“the specific intent to deceive or cheat someone, usually for personal financial gain or to cause financial loss to someone else.” Id.
On those instructions, viewed in the proper light, our Wynn decision explained that the court’s charge was correct, i.e., it did not permit the jury to find intent proved solely by an intent to deceive. See 684 F.3d at 478-79. The term “usually” explained motivation. Id. at 478.
It “did not withdraw the instruction to the jury that the scheme to defraud must ‘include a plan or course of action intended to deceive or cheat someone out of money or property.’ ” Id. That instruction, we explained, obviously conveyed “an intent to harm in some sense.” Id.
As in Wynn, the intent instructions used by the trial court—viewed as a whole and in context—plainly conveyed to the jury that it had to find more than a mere intent to deceive SunTrust
. See United States v. Rahman , 83 F.3d 89, 92 (4th Cir. 1996) (explaining that specific instructions should not be viewed in isolation). To commit wire fraud, the defendants had to engage in a scheme to defraud, which is “a deliberate plan … by which someone intends to deceive or to cheat another or by which someone intends to deprive another of something of value.” See J.A. 1314. Notably, the instructions on intent to defraud substantially tracked those that we had approved four years earlier in Wynn . See 684 F.3d at 478. And, in any event, “a trial court has considerable discretion in choosing the specific wording of its instructions.”
See United States v. Hager , 721 F.3d 167, 185 (4th Cir. 2013). In these circumstances, we are content to reject the contention that the court erred with respect to the intent to defraud instructions.
We also agree with the prosecution that, if the trial court’s intent instructions could somehow be deemed erroneous, the error was harmless.
On this evidence, the defendants had repeatedly engaged in underhanded tactics to hoodwink SunTrust underwriters into approving falsified loan applications. The defendants were thereafter rewarded for their deception by the commissions that SunTrust paid.
The defendants ask us to ignore their efforts to deceive SunTrust and to instead focus on SunTrust’s business model. If we were inclined to indulge the defendants’ misdirection—and we are not—the witness Daloia refuted the allegation that SunTrust was insulated from harm if the fraudulent loans went into default. Because of the guilty verdicts, that explanation was necessarily accepted by the jury.
Finally, the defendants contend that the trial court abused its discretion by failing to instruct the jury prior to the deliberations that it was obliged to “give separate and individual consideration to each charge against each defendant.”
See J.A. 210.
As proposed by the defendants, that instruction would have explained that “[t]he fact that you find one defendant guilty or not guilty of one of the offenses charged should not control your verdict as to any other offense charged against that defendant or against any other defendant.” Id. The defendants argue that, in failing to so instruct, the court permitted the jury to find guilt by association.
In response, the government does not say that the proposed instruction was erroneous.
It maintains that the substance of the proposal was covered by the trial court’s charge, both prior to and during the deliberations. Notably, the court instructed the jury in the charge—in words that refute the defendants’ contention of error—that the “verdict must be unanimous on each count as to each defendant.”
See J.A. 1330.
The court further explained that the jury would receive “a verdict form for each defendant,” and pursuant thereto had to reach and return a “not guilty or guilty” verdict on each charge as to each defendant. Id.
During the deliberations, the jury sent the court a note that said: “According to the judge’s instructions, if we find the Defendants guilty of [conspiracy to commit wire fraud], is guilt assumed for all other counts?”
See J.A. 1364.
The court responded—with the prior approval of the lawyers—as follows:
As to your question, the answer is no. That if you find the Defendants guilty [of conspiracy to commit wire fraud], guilt is not assumed for all counts. You have to look at each and every count for each and every defendant in accordance with the instructions that I gave you and reach an individual verdict on each and every one of the counts.
Id. at 1351.
The defendants argue that the supplemental instruction was not sufficient because it was given after the deliberations had begun and the jury had already agreed on its verdicts.
The government rejects that assertion, emphasizing that the jury had certainly not agreed on verdicts when the note was sent—as evidenced by the fact that the jury had thereafter sought even more guidance from the court. See id. at 1365.
We agree with the government that the instructions adequately covered the defendants’ proposed instruction concerning the jury’s duty to give individual consideration to each offense alleged.
See United States v. Bartko , 728 F.3d 327, 343 (4th Cir. 2013)(explaining there is no abuse of discretion where jury charge “substantially covered” rejected instruction).
More specifically, the jury was told that the verdict had to be “unanimous on each count as to each defendant.”
See J.A. 1330. That directive was supported by the verdict forms themselves, along with the supplemental instruction given during the deliberations.
Notably, a separate verdict form was provided to the jury for each defendant, with the separate counts against each defendant listed thereon, thus requiring a separate verdict on each count. And as the completed verdict forms clearly demonstrate, the jurors acted precisely as the trial court directed. Id. at 1366-69.
For example, Raza was acquitted on three of the seven counts reflected on his verdict form, and his wife Humaira Iqbal was acquitted on one of the three charges lodged against her. The jurors were unquestionably careful and conscientious in the performance of their exceedingly important duties.
Finally, the jurors confirmed the accuracy of each of the verdicts—unanimously—in open court. Id. at 1358.
In these circumstances, we are satisfied that the trial court did not err in failing to give the defendants’ proposed instruction.
Pursuant to the foregoing, we are obliged to sustain the convictions of each defendant and affirm the judgments of the district court.
New billboard accuses mortgage company of fraud
Mar. 7, 2018 | Republished Aug. 2, 2021
WILMINGTON, NC – A Wilmington resident and businessman has taken out a billboard on Eastwood Road accusing SunTrust Mortgage of dishonest business practices.
The billboard has a picture of a home on it, and says “bogus loans” and “#SunTrustScandal,” directing people to a website which details allegations against the mortgage company.
Scott Griffin had three loans with SunTrust Mortgage when the real estate market crashed in 2007. At that point, SunTrust non-renewed the loan on one of his properties, and attempted to foreclose. Griffin began digging into the particulars of his mortgage, and says he later realized SunTrust had never held clear title or the note to his loan. It appears SunTrust sold it to a third party.
According to Griffin’s understanding of the law, that meant SunTrust has no legal standing to foreclose on the property. He says it also has no legal standing to collect payment on the property, so he stopped paying. SunTrust has attempted to take Griffin to court several times since then to take back the property. Those attempts have been unsuccessful, and Griffin still owns it.
“Mr. Griffin’s current relationship with SunTrust is involved in ongoing foreclosure litigation currently before a judge in New Hanover County court,”
SunTrust Spokesman Mike McCoy told WECT in a written statement.
“We believe that is the appropriate forum for concerns, and will refrain from publicly discussing client matter or ongoing litigation.”
During his research, Griffin also discovered that SunTrust had its certificate of authorization to do business in NC suspended on July 21, 2011, by the Secretary of State.
During the time that certificate was suspended and reinstated, SunTrust Mortgage authorized dozens of new mortgages in New Hanover County alone, which appears to be a direct violation of the Secretary of State’s orders.
Further, Griffin alleges that SunTrust “slip sheeted” paperwork on file with the New Hanover County Clerk of Courts and others. He found six examples in New Hanover County alone of the same expired document being used to open or authorize dozens of official proceedings between the bank and customers here.
Slip sheeting means using a Post-it note or something similar to cover up the information on a document that shows it is expired or not relevant to the business transaction at hand.
Griffin says the documents included in the Clerk of Court’s file involving the SunTrust transactions were photocopied to make it less obvious the documents are fraudulent.
Without access to the original document that was slip sheeted, you can’t see everything that’s written.
This is not the first time SunTrust has been accused of criminal wrongdoing involving customers and their mortgages. In 2014, SunTrust Mortgage agreed to pay a $320 million settlement to the US Government following a criminal investigation of SunTrust’s administration of the Home Affordable Modification Program.
“SunTrust misled numerous mortgage servicing customers who sought mortgage relief through HAMP,”
the US Department of Justice said in a news release about that settlement.
“Specifically, SunTrust made material misrepresentations and omissions to borrowers in HAMP solicitations, and failed to process HAMP applications in a timely fashion. As a result of SunTrust’s mismanagement of HAMP, thousands of homeowners who applied for a HAMP modification with SunTrust suffered serious financial harms.”
SunTrust Mortgage Agrees to $320 Million Settlement
JUL 3, 2014 | Republished Aug. 2, 2021
The Department of Justice today announced an agreement with SunTrust Mortgage Inc. that resolves a criminal investigation of SunTrust’s administration of the Home Affordable Modification Program (HAMP).
As detailed in documents filed today, SunTrust misled numerous mortgage servicing customers who sought mortgage relief through HAMP. Specifically, SunTrust made material misrepresentations and omissions to borrowers in HAMP solicitations, and failed to process HAMP applications in a timely fashion. As a result of SunTrust’s mismanagement of HAMP, thousands of homeowners who applied for a HAMP modification with SunTrust suffered serious financial harms.
SunTrust has agreed to pay $320 million to resolve the criminal investigation into SunTrust’s HAMP Program.
The money is divided as follows:
Restitution – SunTrust will pay $179 million in restitution to compensate borrowers for damage caused by its mismanagement of HAMP. That money will be distributed to borrowers in eight pre-determined categories of harm. If more than $179 million is needed, the bank will also guarantee an additional $95 million for additional restitution. SunTrust will also pay $10 million in restitution directly to Fannie Mae and Freddie Mac.
Forfeiture – SunTrust will pay $16 million in forfeiture. This money will be available to law enforcement agencies working on mortgage fraud and other matters related to the misuse of TARP funds.
Prevention – SunTrust will pay $20 million to establish a fund for distribution to organizations providing counseling and other services to distressed homeowners. Specifically, SunTrust will pay this amount to a grant administrator selected by the government, which funds will in turn be awarded to housing counseling agencies and other non-profits devoted to consumer counseling and advocacy.
In addition to the significant payment, SunTrust has agreed to implement certain remedial measures aimed at preventing future problems like those that led to this investigation. Specifically, it will increase loss mitigation staff, monitor their mortgage modification process, and provide semi-annual reports regarding compliance with the agreement.
This settlement makes clear the Department’s commitment to supplementing its enforcement work with support for prevention programs. The grant fund established by this settlement will help distressed homeowners avoid the harms that befell SunTrust customers. This is real relief for housing agencies, which will compete for grants to increase their counseling and other services to homeowners across the country.
“Instead of helping distressed homeowners, SunTrust’s mismanagement drove up foreclosures, decimated individual credit and increased costs for hardworking men and women across our nation,”
said Attorney General Eric Holder.
“This resolution will provide much-needed restitution for victims. It will make available substantial funds to help other homeowners avoid foreclosure. And it will result in the kinds of systemic changes needed to ensure that this will not happen again. This outcome demonstrates yet again that the Justice Department will never waver in its ongoing pursuit of those whose reckless and willful actions harm the American people and undermine our financial markets.”
“The $320 million resolution of this long-running investigation requires SunTrust Mortgage to compensate its customers for the harm caused by the company’s false promises in administration of the Home Affordable Modification Program in 2009 and 2010 – conduct thoroughly described in the Statement of Facts that accompanies the settlement documents,”
U.S. Attorney Timothy J. Heaphy said today.
“Up to $284 million will be paid in restitution directly to the victims of SunTrust’s conduct. SunTrust will also establish a $20 million grant fund which will be distributed to agencies working with distressed homeowners and provide $16 million in asset forfeiture funds that will be used by law enforcement for future mortgage fraud investigations. The company has also agreed to make specific changes in its operations designed to prevent similar problems in the future.
“SunTrust has done the right thing by agreeing to this novel package of restitution, remediation, and prevention, which represents a significant victory not only for SunTrust customers, but also for Americans who will receive counseling and other assistance when faced with financial challenges,”
U.S. Attorney Heaphy said.
“This settlement demonstrates the commitment of the Department of Justice and the Special Inspector General for the Troubled Asset Relief Program to hold financial institutions accountable and provide restitution to those harmed by their conduct.”
“Today’s agreement with SunTrust underlines the importance of holding accountable those individuals and companies who pledge to ensure that homeowners are protected at all times; especially during times when the homeowner is seeking to save their home through a loan modification.
SunTrust has conceded that their HAMP program had numerous deficiencies and has harmed a significant amount of homeowners. This behavior will not be tolerated. We are proud to have worked with our law enforcement partners on this case,”
said Michael P. Stephens, Acting Inspector General of the Federal Housing Finance Agency Office of Inspector General.
“HAMP was designed to be a beacon of hope and opportunity for homeowners in dire straits, but TARP recipient SunTrust, rather than assist homeowners in need, financially ruined many through an utter dereliction of its HAMP program,” said Christy Romero, Special Inspector General for TARP (SIGTARP).
“This criminal investigation uncovered that SunTrust so bungled its administration of the program, that many homeowners would have been exponentially better off having never applied through the bank in the first place.
Unwilling to put resources into HAMP despite holding billions in TARP funds, SunTrust put piles of unopened homeowners’ HAMP applications in a room. SunTrust’s floor actually buckled under the sheer weight of unopened document packages.
Documents and paperwork were lost.
Homeowners were improperly foreclosed upon.
Treasury was lied to.
The negligence with which SunTrust administered its HAMP program is appalling, miserable, inexcusable, and repulsive.
Real people lost their homes, and many others faced financial ruin.
Ending this behavior and, where necessary, forcing institutions to change their culture through law enforcement by SIGTARP and our partners will help begin the process of restoring faith in financial institutions and healing public trust.”
The investigation of the case was conducted by the United States Attorney’s Office for the Western District of Virginia, the Office of the Special Inspector General for the Troubled Asset Relief Program, and the Office of the Inspector General for the Federal Housing Finance Agency (FHFA) and the United States Postal Inspection Service.
Office of the Attorney General
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