Federal authorities on Monday charged five people in connection with a "Dream Home" mortgage scheme that cost investors nearly $70 million.
The defendants allegedly promised to pay off the mortgages on the "dream homes" of the more than 1,000 consumers taken in this scheme, but left them with nothing but shattered dreams and drained bank accounts, said Assistant Attorney General of the Criminal Division Lanny A. Breuer and U.S. Attorney for the District of Maryland Rod J. Rosenstein.
According to the grand jury indictments unsealed on Monday, the defendants allegedly ran their deceptive mortgage payment program from 2005-2007 under various corporate names, including Metropolitan Grapevine LLC, Metro Dream Homes, POS Dream Homes, and POS DH LLC (collectively, MDH).
The defendants named in the federal indictments Andrew Hamilton Williams, Jr., 58, of Hollywood, Florida, the founder and owner of MDH; Michael Anthony Hickson, 46, of Commack, New York, the chief financial officer; Isaac Jerome Smith, 46, of Spotsylvania, Virginia, the president; and Alvita Karen Gunn, 31, of Hanover, Maryland, the vice president of operations.
Authorities also filed information against a fifth defendant, Carole Nelson, 50, of Washington, D.C., the chief financial officer of POS Dream Homes.
The indictments allege the defendants used deceptive marketing tactics to convince consumers to participate in their "Dream Homes Program."
Here's how the scheme worked:
• The defendants convinced consumers to pay a minimum of $50,000 for each home enrolled in the program. Investors also had to pay an "administrative fee" of up to $5,000;
• The defendants told investors not to worry about high mortgages because Metro Dream Homes would pay their future monthly payments and pay off their mortgages within five to seven years — using returns on the homeowner's original investment. At that time, the homeowner and Metro Dream Homes would then own an equal interest in the home;
• The defendants told consumers their $50,000 would be used to fund investments in automated teller machines, flat-screen TV displays that carried commercial advertisements, and Touch-N-Buy electronic kiosks that sold telephone calling cards and other items;
To make their scheme appear more legitimate, the defendants marketed the program through live presentations at posh hotels in Washington, D.C.; Baltimore, and Beverly Hills, California.
But authorities allege the defendants didn't use investors' money as promised.
"The indictment alleges that there was no revenue to pay the mortgage payments," Rosenstein said. "Instead, the conspirators used some of the investors' money to repay earlier investors in the Ponzi scheme and spent the remainder on themselves."
Authorities learned the defendants used investors' money to pay for 10 chauffeurs and a fleet of luxury cars, travel and tickets to the 2007 National Basketball Association All-Star game, the 2007 National Football League Super Bowl, and luxury accommodations on both trips.
The defendants also used consumers' money to pay themselves salaries of up to $200,000 a year — and their mortgages; pay off investors in a prior failed ATM investment venture founded by Williams; make multiple donations of up to $50,000 each to charitable organizations to allegedly give MDH the appearance of being financially successful; and fund investments in third-party businesses that had not been disclosed to investors.
Federal prosecutors also allege the ATM machines, flat-screen TVs, and electronic kiosks never generated any meaningful revenue.
"The effects of this wide-ranging mortgage fraud scheme are particularly disturbing against the backdrop of today's economic environment," said Thomas J. Harrington, Executive Assistant Director of our Criminal, Cyber, Response, and Services Branch.
The Maryland Securities Commissioner on August 15, 2007, issued a cease-and-desist order against Williams, MDH, and other related companies. That order directed them to immediately stop offering and selling unregistered securities in connection with the Dream Homes Program.
The defendants, however, allegedly ignored that order and held additional meetings in which they made further misrepresentations about the financial success of MDH's operations.
On September 4, 2007, the defendants filed a legal challenge to the cease-and-desist order in federal court.
The federal indictment alleges during a September, 12, 2007, hearing, Hickson testified that the financial success of the Dream Homes Program did not rely on new investor funds. Hickson, however, knew the sole source of meaningful revenue for MDH was new investor funds, the indictment alleges.
Federal authorities said more than 1,000 consumers invested approximately $70 million in the Dream Homes Program.
When the defendants stopped making the mortgage payments, authorities said, the homeowners had to try and make the payments MDH promised to pay in full.
"These types of crimes drive homeowners into foreclosure, erode the integrity of our tax system, and threaten the financial health of our communities," said Eileen Mayer, Chief, IRS Criminal Investigation.
The four indicted defendants face a maximum sentence of 20 years in prison for the fraud conspiracy; 20 years in prison on each of the 15 counts of wire fraud; and 20 years in prison for conspiracy to commit money laundering.
Hickson also faces a maximum sentence of five years in prison for making false statements. And Smith faces a maximum sentence of 30 years in prison for bank fraud in connection with his alleged misrepresentation of his income to obtain a bank loan for a new Bentley automobile. Nelson was charged by information with money laundering, which carries a maximum penalty of ten years in prison.
The indictments also seek forfeiture of the fraud proceeds, including the $70 million investors lost in the scheme. An indictment is not a finding of guilt, federal authorities said. An individual charged by indictment is presumed innocent unless and until proven guilty at some later criminal proceeding.