25 Individuals in Chicago Area Arrested on Mortgage Fraud Charges

The FBI has announced that 25 people have been charged in one of the largest alleged mortgage fraud schemes to ever occur in the Chicago area. The investigation was the result of an ongoing joint effort undertaken by the FBI and the Postal Inspection Service following the 2004 arrest of 47 individuals accused of having ties with Chicago-based street gangs.^[1]

The indictments charge that over 150 properties, a majority of which are in foreclosure, were involved in fraudulent transactions and that losses from the fraud totaled over $25 million.^[2]
Amongst the charges listed in the indictments are felony counts of mail fraud, wire fraud, money laundering and conspiracy.^[3] Although no federal criminal statute associated with mortgage fraud exists, it does not prevent the government from prosecuting individuals for what they refer to as “mortgage fraud.” Assistant United States Attorneys will use other crimes, like those indicated in the aforementioned indictments, to tie in an alleged fraudulent act so that they may prosecute under the pretense of mortgage fraud.^[4] Using mail fraud as an example, it becomes clear how the government employs this tactic to indict individuals for alleged mortgage fraud.

The simple use of mail over the course of a scheme is inadequate to uphold a charge of mail fraud; it must be shown that the mailings were executed in a manner as to further a scheme to defraud. Furthermore, the mailings themselves need not include any fraudulent representations. Indeed, courts have gone on to hold that the mailings need not be ''an essential part of the scheme.''^[5] However, some nexus connecting the scheme and the mailings must be established. Typical language used by the courts is that the requirement that each mailing charged in the indictment be at least ''incidental to an essential part of the scheme,''^[6] or that ''an attempt to carry out or execute the scheme,'' closely relates to the defendant's mailings.^[7] Moreover, it has been found that a nexus exists if the completion of the scheme or the prevention of its detection depended in some way on the mailings.^[8] While this nexus must be established it is not necessary for it to be evident in the indictment. Thus, an indictment which insufficiently states facts from which a federal grand jury may discern that the mailings charged were utilized in furthering a scheme to defraud will not be set aside by a motion to dismiss. Moreover, the adequacy of the evidence to establish the mailings relationship to the scheme is for the federal grand jury to determine.^[9] To read more on how federal grand juries work click here.

Therefore, merely establishing that mailings are an incidental part of the scheme is enough to tie in a charge of mail fraud for another fraudulent activity. This is a prime example of how government prosecutors charge individuals for crimes which are not associated with their own federal statute.

Federal criminal attorney Douglas McNabb has previously discussed all of the federal crimes noted in this blog. These can be found here. Specifically, mail fraud can be found here and money laundering can be found here.

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[1] Associated Press, FBI says 25 Indicted in Mortgage Fraud Scheme, Chicago Tribune Web Edition, Feb. 9, 2008, available at http://www.chicagotribune.com/business/chi-ap-il-mortgagefraud,0,4929272.story .
[2] Id.
[3] Id.
[4] Posting of McNabb Associates, P.C., to McNabbAssociates.com (available at http://www.federalcrimes.com/mortgagefraud.htm).
[5] United States v. Maze, 414 U.S. 395 (1974).
[6] United States v. Pimental, 380 F.3d 575, 584, 588 (1st Cir. 2004).
[7] Parr v. United States, 363 U.S. 370 (1960).
[8] United States v. Pacheco-Ortiz, 889 F.2d 301 (1st Cir. 1989).
[9] United States v. Pimental, 380 F.3d 575, 584, 588 (1st Cir. 2004).