DOJ CONTINUES TO PROSECUTE INVIDUALS WHO RIG BIDS AT REAL ESTATE FORECLOSURE AUCTIONS

The Department of Justice’s Antitrust Division continues to send a strong message to individuals engaged in conspiracies to rig public real estate foreclosure auctions through criminal enforcement.  Punishing real estate investors engaged in illegal activity that harms struggling homeowners and financial institutions continues to be a priority for the Antirust Division.

Alabama Public Real Estate Auction Investigation

On October 31, 2014, the Antitrust Division announced that an Alabama real estate investor pleaded guilty for his role in a conspiracy to commit mail fraud related to public real estate foreclosure auctions held in southern Alabama.

To date, 10 individuals and two companies have pleaded guilty in connection with the DOJ’s ongoing investigation into bid rigging and fraudulent schemes in the Alabama real estate foreclosure auction industry.

Chad E. Foster, a resident of Theodore, Alabama, is the latest to plead guilty to an indictment filed in the U.S. District Court for the Southern District of Alabama.  Mr. Foster was charged with one count of conspiracy to commit mail fraud affecting a financial institution.  According to court documents, Mr. Foster knowingly joined a conspiracy with others to fraudulently acquire title to selected properties at artificially suppressed prices, to conduct secret, second auctions open only to members of the conspiracy, to make payoffs to and receive payoffs from co-conspirators, and to divert money away from financial institutions, homeowners and others with a legal interest in selected properties.

The charge of conspiracy to commit mail fraud affecting a financial institution is extremely serious as it carries a maximum penalty of 30 years in prison and a $1 million fine.

The Antitrust Division’s Washington Criminal II Section and the FBI’s Mobile Field Office, with the assistance of the U.S. Attorney’s Office for the Southern District of Alabama has an ongoing investigation concerning bid rigging or fraud related to public real estate foreclosure auctions in Alabama.

Northern California Public Real Estate Auction Investigation

On October 21, 2014, the Antitrust Division announced that a federal grand jury in San Francisco returned an eight-count indictment against five real estate investors for their role in bid rigging and fraud schemes at foreclosure auctions in Northern California.

The indictment was filed in the Northern District of California in San Francisco, California.  The indictment charged Joseph Giraudo, Raymond Grinsell, Kevin Cullinane, James Appenrodt and Abraham Farag with participating in conspiracies to rig bids and schemes to defraud mortgage holders and others in violation of the Sherman Act.  The indictment alleges, among other things, that beginning in August 2008 and continuing until January 2011, the defendants agreed to rig bids to obtain properties sold at public foreclosure auctions in San Mateo and San Francisco counties, California, paid others not to bid, accepted payoffs not to bid, in turn defrauding financial institutions, mortgage holders, and struggling home owners.  Additionally, Mr. Giraudo, Mr. Grinsell and Mr. Appenrodt were charged with mail fraud.

Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals.  Each count of mail fraud carries a maximum sentence of 20 years in prison and a $1 million fine.  The government can also seek to forfeit the proceeds earned from participating in the mail fraud schemes.  The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million.

These were the latest indictments in the DOJ’s ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa, and Alameda counties, California.  The ongoing investigation is conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office.

To date, 47 individuals have agreed to plead or have pleaded guilty, as a result of the DOJ’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.

Lessons Learned

The Antitrust Division continues to punish real estate investors engaged in illegal activity.  Indeed, October was another busy month for criminal enforcement.  The guilty plea in Alabama and the indictments in Northern California demonstrate the Antitrust Division’s resolve to prosecute individuals who violate the Sherman Act by conspiring to defraud distressed homeowners and financial institutions and rigging bids at foreclosure auctions.  Real estate investors must understand that entering into an agreement to bid or not to bid with other individual real estate investors to obtain properties at a public auction is illegal and can lead to jail time.  Indeed, the Antitrust Division will continue to hold accountable individuals who subvert the competitive process for their own gains and profit illegally at the expense of struggling homeowners and mortgage holders.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com