Real estate is an increasingly popular area of investment, but there are potential legal pitfalls. Real estate investment fraud charges can be complex, involving federal authorities prosecuting the crimes. Our legal team understands the many related criminal charges that can be brought in cases of real estate investment fraud and we can help defend you against those charges.
An experienced fraud defense attorney can help navigate the process of addressing the charges and limiting the damage done to your financial future and freedom. We have the knowledge to guide you through fighting any federal prosecution for real estate investment fraud.
What Puts A Person Or Entity At Risk of Prosecution?
If a person knowingly makes a false statement while investing or attempting to invest in real property, they might be at risk of federal prosecution for real estate investment fraud. For example, if a person or company makes false statements on a loan application, that could be considered fraud.
Real estate investment fraud of this type could be an issue for the individual or the mortgage broker. The individual is at risk for requesting the loan using false information, and the mortgage broker is at risk for perpetuating the fraud by submitting a loan application that contains the information they knew was false.
Additionally, individuals or companies that are soliciting investments in real estate schemes could be liable for fraud if there are intentionally misleading elements. For example, if a company misrepresents the status of an investment property and continues to solicit investments based on false promises of the financial reward.
Not only that, but foreclosure auctions can also be a source of risk for prosecution. If there is a public foreclosure auction, and bids are rigged or attempted to be rigged, this could be a type of fraud that is liable for prosecution as an antitrust action.
What Are The Federal Statutes Related To Real Estate Investment Fraud?
A myriad of federal laws exists to prosecute fraud related to real estate investments. Fraud statutes specify crimes based on the vehicle used to commit the fraud, e.g. Mail fraud[1] and wire fraud[2] which are commonly used statutes for prosecuting real estate investment fraud. They both have three basic elements:
- Intending to defraud;
- Obtaining property or some value by fraud, or having some plan or method for committing the fraud;
- Communicating through the U.S. mail or another interstate carrier, or communicating by wire, radio, or television.
The specific categories of fraud are not limited to mail and wire. In fact, a corresponding statute prohibits fraud committed through electronic mail, that expands on the types of fraud to include problematic actions that are more prominent with e-mail.[3] In addition, there is a category of fraud committed against or through a financial institution.[4]
These elements of this crime do not require any specific means of communication as with the other forms of fraud identified here. Federal statutes also provide a general prohibition on making fraudulent statements or representations.[5] The elements of this crime are:
- Intent (knowing and willful action);
- Create, conceal, or use a document containing a materially false statement or representation;
- Stand within the jurisdiction of any of the three branches of the federal government when the fraudulent act was committed.
What Are Some Related Crimes?
Mail, wire, bank, electronic mail, and general fraud statutes are not the only crimes under which real estate investment fraud are prosecuted. States have laws and regulations governing business practices, licensing and rules for real estate, and fraud crimes prosecuted by local and state authorities, such as:
- Any individual or company prosecuted at the federal level, can still be prosecuted under the state laws in each jurisdiction where said fraud was committed. Combined with the fraud crimes is this statute[6] making it criminal to attempt to commit or conspire to commit any fraud.
- The Sherman Antitrust Act has also been used to prosecute real estate investment fraud aiming to limit competition in real estate investment schemes – making it criminal to contract or conspire to unreasonably restrict interstate commerce.[7] This part of the law works against anti-competitive actions, even if the result does not affect competition.
- These also make it a crime for a person with monopoly power in their given market to monopolize or attempt to monopolize interstate commerce.[8] This part of the law focuses on the results, regardless of the actions that got to that result.
What Are Some Of The Essential And Impactful Cases?
Court cases have generally affirmed the broad reach of the fraud statutes. In Durland v. the United States, the Supreme Court reviewed a conviction of a man who solicited investments based on fraudulently guaranteed returns on those investments. The conviction was appealed on the claim that the intended victims did not rely on any promises of future returns.
The Supreme Court held reliance on any false statements is not required for fraud to have been committed. In looking at Blachly v. the United States, the U.S. Court of Appeals for the Fifth Circuit heard the appeal of one of three individuals convicted by a jury for mail fraud because of an arrangement in which water softeners were sold in a multi-level marketing or referral scheme. The only appellant was the person charged as the direct principal in the scheme.
The appeal was based on the claim there was no intent to defraud shown. The court permitted the jury to infer said intent based on a lack of moral character, honesty, and fair dealings. These cases lessen the burden on prosecution and make a skilled defense more critical. It is important to understand where the defined boundaries lie in defining criminal, real estate investment fraud.
What Federal Agencies Detect And Investigate Real Estate Investment Fraud?
For most fraud cases, the Federal Bureau of Investigation (FBI) detects and investigates potential fraud. The U.S. Postal Inspection Service, also known as the Postal Police, will investigate cases of suspected mail fraud.
If there are charges of antitrust, the Department of Justice (DOJ) Antitrust Division may be involved, especially in receiving tips about possible fraud. Also, depending on the structure of the fraudulent real estate investment, the Securities and Exchanges Commission (SEC) may play a role in detecting and investigating how the fraud runs afoul of securities laws.
What Are the Federal Agencies Involved In Prosecuting These Crimes?
The DOJ is the primary agency that prosecutes fraud allegations. There is also a Financial Fraud Enforcement Task Force at the U.S. Treasury that is aimed at preventing another financial crisis, in part, from improper mortgages. As part of the DOJ’s prosecutorial effort, the investigators will likely be relied upon to present evidence of the alleged crimes.
Depending on the nature of the case, state and local authorities may work with the DOJ to jointly prosecute. For smaller fraud schemes, the DOJ may defer to the local authorities to prosecute cases as they desire.
What Are The Statutory Penalties If You Are Convicted Of Real Estate Investment Fraud?
Each fraud statute outlines the possible penalties. But the lowest possible penalty is for violating the general prohibition on making fraudulent statements or representations. A possible unspecified fine and imprisonment may include:
- Starting from the least, up to 5 years of incarceration.
- Mail or wire fraud carries with it an unspecified fine and imprisonment of up to 20 years.
- Bank fraud carries a fine of up to $1,000,000 and imprisonment of up to 30 years.
- Antitrust violations – the penalty being different for individuals and corporations – carries with it can face a fine of up to $1,000,000 and 10 years in prison for individuals, corporations can face a fine of up to $100,000,000.
What Are Some Of The Additional Consequences Of Being Convicted?
Conviction of real estate investment fraud can have a devastating and lasting impact. If one real estate investment scheme is found to be fraudulent, any future business ventures will be called into question by potential investors, no matter the legitimacy.
In addition to the immediate cost of any fines that come with the conviction, there will be ongoing financial hardships that come from the damage to your reputation. Moreover, the ability to work in this industry at all could be jeopardized. If you hold a professional license of any sort, like as a realtor, a conviction could lead to revocation of that license.
What Are Some Defenses To Real Estate Investment Fraud?
As with any crime, the prosecutor has the burden of proof to show that the defendant is guilty. However, the relevant criminal statutes and cases have shown that there is a broad range of permissible prosecution for real estate investment fraud. An experienced defense attorney would have to attack each element the prosecutor is trying to prove with:
- A statement showing the purportedly fraudulent statement actually stood true or could be interpreted as true would prove a finely-tuned defense against the allegations being made. This defense could help avoid conviction on any of the fraud charges or related crimes.
- A defense attorney who could undercut any argument of intent. If the defendant worked off a reasonable assumption or had information supporting the claims found to be fraudulent, a skilled fraud defense lawyer could demonstrate a lack of intent to defraud. Acting based on unknown false information could help avoid conviction.
On a final note, if the charges are based on a conspiracy to commit fraud, a defense attorney can help extract a defendant that was not the primary actor from the conspiracy. If an individual was unwittingly involved in defrauding others but did not know that was what was going on, a defense attorney can help show that they were not acting with the intent to defraud.
Moreover, a defense would need to show how that individual could not have reasonably seen what was going on. As the case law shows, it is important to show the defendant as having a moral character so that a jury would not want to convict.
Why Do You Need A Lawyer?
A lawyer can navigate the complexities of prosecution and everything leading up to it. The individual charged is facing a high-stress situation and will need someone to fight for them. Before charges are brought, investigators will want to speak with you. A lawyer can help guide you during these conversations and work with authorities to limit exposure to liability.
And if charges are brought against you, an attorney is able to help evaluate plea deals to decide if the lower punishment is worth avoiding the risks of a trial. Finally, if you have to go to trial, an attorney experienced with real estate investment fraud can defend you vigorously.
Article #1:
A Minnesota real estate company, a realtor, and an accountant were indicted on four counts of mail fraud, four counts of wire fraud, and conspiracy to defraud.
The alleged scheme involved managing and selling foreclosed properties in the Minneapolis area. The defendants required kickbacks from repair contractors in order to be awarded the contracts for home repairs.
The foreclosed properties were managed by the defendant’s company. Also involved in this investigation was at least one home repair contractor, who pled guilty and was not included in the indictment.
In addition to the fraud allegations related to home repairs, the defendants were charged with fraud related to the sales of the foreclosed properties.
In selling the foreclosed properties through an auction process, the defendant used sham bids to manipulate the bidding situation and defraud the companies for which these foreclosed properties were managed.
These fraud charges also involve a financial institution, so it pulls in the maximum penalty that goes with bank fraud charges.
Article #2:
A federal court in Massachusetts sentenced a man to 81 months in prison for a fraud scheme and ordered him to pay nearly $2 million in restitution to his victims.
The man had a long history of fraud, beginning in 1997 in New York. At that time, he was charged with grand larceny and fraud, but evaded police for 20 years.
He took the identity of a man he knew in Florida and used that identity to perpetrate fraud in Massachusetts. He worked as a realtor from 2009 to 2016 under the assumed identity.
In 2017, he was arrested for a fraudulent real estate investment scheme, which took place between 2014 and 2016.
The fraudulent scheme involved soliciting investments for the development of the Beachcomber Bar and an adjacent single-family home development in Quincy, Massachusetts.
The investments solicited promised overinflated returns, and the money collected for those investments were largely used for personal spending and not for the real estate development costs.
Article #3:
Two Mississippi real estate investors pled guilty of conspiracy to commit fraud. Foreclosed homes up for public auction use a bidding process.
The investors rigged the bidding process for their benefit. Other potential bidders were paid off to ensure that they did not participate in the auction process. As a result, the homeowners and companies involved were harmed.
The prosecutors brought charges of antitrust, based on Sherman Act violations. The rigged bidding system’s primary purpose was to reduce competition, lowering the eventual price paid for the foreclosed home at auction.
Article #4:
Two individuals in San Diego were convicted of real estate fraud by a jury. The defendants in the case were an executive and a broker. The two benefitted from the proceeds of fraudulently obtained loans.
The scheme involved the obtainment of lenders, who could make large loans against four multi-million dollar homes.
Soon documents were forged making it appear as though these large loans were already paid off, thus allowing them to seek new loans from new lenders. The new loans would also be against the same properties.
After the lenders began to discover that their interests in the homes were in jeopardy, the defendants committed additional fraud to cover up the crimes. Additional co-conspirators pled guilty prior to this trial.
Article #5:
Bid rigging is a common source of prosecution for real estate investment fraud. A man in West Palm Beach pled guilty to rigging bids during online auctions for foreclosed properties in Florida.
The defendant conspired with others to rig the bids. This type of fraud led to prosecution under the Sherman Act.
[1] 18 U.S.C. § 1341.
[2] 18 U.S.C. § 1343.
[3] 18 U.S.C. § 1037.
[4] 18 U.S.C. § 1344.
[5] 18 U.S.C. § 1001.
[6] 18 U.S.C. § 1349.
[7] 15 U.S.C. § 1.
[8] 15 U.S.C. § 2.
