Once upon a time, nearly a decade ago, the Federal National Mortgage Association – Fannie Mae – filed suit against a Brooklyn based mortgage company, Olympia Mortgage. When the complaint was filed in 2004, the real estate market was red hot, Fannie Mae was a privately owned company and few imagined the coming housing market crisis. Although the recession would later expose many frauds, the actions of Olympia were so blatant that a suit was filed years before the meltdown.
What did Olympia do? Fannie Mae claims that in an ingenious twist on the typical Ponzi scheme, Olympia was pocketing monies when mortgage loans were paid off. In the early part of the new millennium, speculators would frequently buy residential properties only to flip them for a profit a few months later. When the property was sold, any existing mortgages would be paid from the closing proceeds. At least that is how the process should work.
Fannie Mae said Olympia stole the payoff amounts and continued to report the loan as open. They would pay the monthly mortgage payments in order to disguise that the property had been sold and that they had pocketed the payoff monies. All told, Fannie Mae said its losses were at least $44 million.
The scheme was ingenious but doomed to failure. There is no logical way that Olympia could avoid being caught but with tens of millions of dollars at stake, the temptation was evidently just too strong.
What is amazing is that it took the court 9 years to finally obtain a judgment and even that is not final. (It is also under appeal.) We are dismayed when some fraudsters play games with the judicial process to avoid responsibility for their actions but such games rarely work. Earlier this month after years of legal wrangling, the court issued a judgment on behalf of Olympia’s court ordered receiver in the amount of $44,800,000.00
It took some persistence but justice prevailed.
We suspect that there are many other similar scams and Ponzi schemes. Most come to light only when the money runs out or when a whistleblower steps forward. Although this would not have been a false claims act case in 2004, since then the feds took control of Fannie Mae and Freddie Mac in 2008, the case today would make a wonderful whistleblower case.
Whistleblowers who bring false claims act cases can receive a percentage of whatever the government collects. With average awards measuring in the 20 to 25% range, full recovery of $44 million could result in an $11 million payout to the whistleblower coming forward with information about the scam. Not a bad payday for simply doing the right thing.
If you have confidential, non public information about a fraud to taxpayers or a government backed program (such as Fannie Mae or Freddie Mac), give us a call. For more information, contact attorney Brian Mahany at or by telephone at (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Minneapolis, Minnesota; Portland, Maine and San Francisco, California. Services available in many jurisdictions.
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