Five people involved in a major Central Oregon mortgage and loan fraud scheme that cost banks more than $22 million were sentenced this week in federal court, with ringleader Tyler Fitzsimons getting a 7 1/2-year prison term and ordered to pay all that money in restitution.
Over the past two days, Chief U.S. District Judge Ann Aiken sentenced five defendants, including a real estate developer, a loan officer, a mortgage broker, and an escrow officer for a variety of mortgage and loan fraud charges arising out of the collapse of Desert Sun Development, a company that was headquartered in Bend.
A total of 13 people have been sentenced or are awaiting sentencing in the case, the largest in Oregon to arise from the 2000s real estate bubble and subsequent sharp crash.
Here's the rest of the U.S. Department of Justice release:
From 2004 through 2008, DSD built commercial buildings and residential housing throughout Central Oregon. According to the court records, DSD principals and other defendants caused financial institutions to lose more than $20 million.
Fitzsimons, 35, now of Gold Hill, Oregon, was sentenced to 90 months in prison for spearheading this mortgage-fraud scheme. He was also ordered to pay more than $22 million in restitution. Fitzsimons started DSD in 2004 and was its president.
Codefendant Shannon Egeland, 39, of Kuna, Idaho, was DSD’s vice president. Prosecutors said Fitzsimons and Egeland orchestrated a commercial and residential real estate scheme.
As part of the commercial real estate fraud, Fitzsimons and Egeland submitted fraudulent documents, including false financial statements, tax returns, and leases, to various banks in order to obtain financing to develop and construct many of DSD’s commercial projects.
Once the loans were approved, Fitzsimons, Egeland, and others submitted additional false documents, including fictitious contracts and invoices, to the banks to obtain loan proceeds for construction costs that were claimed to be associated with the fraudulent documents.
For five commercial construction projects, Fitzsimons, Egeland and others obtained more than $4.2 million in funded draw requests and performed no construction.
In fact, the U.S. Department of Justice said Fitzsimons and Egeland committed fraud with DSD’s first commercial construction loan, using the money to buy themselves Dodge Vipers rather than to construct the building as promised.
Fitzsimons and Egeland also developed DSD’s employee house program, a real estate flipping scheme, and they recruited DSD employees, mortgage brokers, a loan officer, and a loan processor to help push through bad loans for participants of the scheme.
Under the scheme, Fitzsimons and Egeland promised to build or sell homes at cost, and the participants agreed to flip or sell the homes and split any profit with DSD.
Because most of the participants could not qualify for the loans, Fitzsimons and Egeland, among other things, undermined the loan approval process by “seasoning” or falsely inflating participants’ bank accounts through temporary deposits of DSD money.
They also provided participants with undisclosed, short-term loans and submitted other fictitious documents, including letters explaining employment, large or recent deposits, and bonuses, to the banks funding the loans.
As part of his guilty plea, Egeland admitted that he seasoned his own bank account with DSD money to obtain a $1.9 million construction loan to build a 22,000 square foot home in Powell Butte, Oregon. In the end, most of the homes involved in the flipping scheme were either only partially constructed or not constructed at all. Many of the properties were foreclosed upon or short sold.
Fitzsimons and Egeland used their ill-gotten gains to live an extravagant lifestyle.
Among other things, they purchased large homes in Powell Butte, Dodge Vipers, a Ferrari, a Hummer, BMWs, Mercedes, and a Malibu Wakesetter boat.
“The illegal actions of these defendants exemplify the conduct that wreaked havoc in the mortgage, financial, and real estate industries for the past several years,” said U.S. Attorney Amanda Marshall.
“Banks were not the only losers in this case. Everyone lost. The effects of defendants’ large scale fraud were dramatic — the local housing market crashed, people lost their jobs, communities were littered with partially finished developments and homes, lending markets constricted, and banks suffered millions in losses. Real estate, bank, and financial insiders who commit fraud will be held accountable.”
Marshall thanked the Federal Bureau of Investigation, the Internal Revenue Service, and the State of Oregon, Division of Finance and Corporate Securities, for their investigative efforts.
Egeland’s sentencing hearing is set for January 29, 2014, at 11:30 a.m.
Others sentenced for their role in the scheme include Jeremy Kendall, 36, of Camano Island, Washington, Jeffrey Sprague, 50, of Bend, Shaun Little, 44, of Bend, and Teresa Ausbrooks, 51, of Farmington, New Mexico.
Kendall was sentenced to 18 months in prison and was ordered to pay more than $22 million in restitution for his role in the fraud.
Kendall, a DSD employee and officer manager, at Fitzsimons’s and Egeland’s direction, created and submitted fraudulent documents to various financial institutions to gain financing for various DSD projects. Kendall was also involved in seasoning bank accounts, including his own, for individuals involved in DSD’s residential flipping scheme.