Investigations | Office of the Special Inspector General for the Troubled Asset Relief Program

California Man Sentenced to More than 4 Years in Prison in Nationwide $2.3 Million Fraud Scheme Under the Names Hope Services and HAMP Services That Victimized More Than 400 Homeowners Related to HAMP Program

Brian Joseph Pacios sentenced to 52 months in prison, the fifth defendant sentenced to prison for a massive nationwide scheme to defraud homeowners that was related to the Home Affordable Modification Program (“HAMP”). Pacios also ordered to pay $2,372,766.28 in restitution.

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Our top law enforcement priority is to investigate and bring justice to unlawful conduct by financial institutions in HAMP. We also continue to support ongoing Department of Justice prosecutions of bankers and their co-conspirators, and foreclosure rescue scammers, that we investigated. We investigate corruption, fraud, and environmental crimes in federally-funded demolitions.

SIGTARP uses an innovative, intelligence-based approach to identify and investigate crime at financial institutions participating in EESA programs, including bank programs or foreclosure prevention programs.

Our special agents have the authority to search, seize, and arrest. When they and our investigators build a strong case against an individual or institution, SIGTARP then works with the Justice Department and other prosecutors to obtain convictions or a guilty plea.

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Guidance on Body Worn Cameras

Notable Investigations

The Crime

$330 Million TARP recipient Wilmington Trust made the bank appear heathier than it actually was to the Federal Reserve, the Securities and Exchange Commission and the investing public.

SIGTARP's Role

SIGTARP played a lead law enforcement role in uncovering criminal and civil violations of the law through data analytics, witness interviews, evidence gathering, and banking expertise.

Investigation Fact

Using false security filings, Wilmington Trust raised more than $273 million in a stock sale. Wilmington Trust announced an agreement to be acquired by M&T Bank at a discount of approximately 46% from the bank's share price the prior trading day.

Prosecution

Wilmington Trust agreed to pay $60 million to resolve a criminal indictment with the Department of Justice and civil charges by the Securities and Exchange Commission.

In separate but related parts of the case three other Wilmington Trust bankers and a co-conspirator were convicted and sentenced to terms up to two and half years. James Ladio, former chief executive officer of MidCoast Community Bank and a co-conspirator in the case, was sentenced to two years. All bankers were also banned from banking.

Sonoma Valley Logo
Press Release

The Crime

Leading up to and during the financial crisis, former chief executive officer Sean Clark Cutting and former chief loan officer Brian Scott Melland conspired to make millions in excessive and illegal loans. The bankers recommended the loans to "straw" borrowers, knowing the proceeds would actually go to a single real estate developer. They then tried to cover up the scheme by falsifying the bank's books and lying to the bank's regulators. The illegal loans resulted in massive losses and eventually caused the bank to fail.

SIGTARP's Role

The prosecution was the result of a multi-year investigation by SIGTARP and its law enforcement partners.

Investigation Fact

When asked why the bank was taking TARP funds, Cutting said that when the government provides a jar of cookies it only made sense to for the bank to take some. All $8.6 million in TARP bailout funds were lost when the bank failed.

Prosecution

The court sentenced both Cutting and Melland to eight years and four months in prison. David Lonich, an attorney co-conspirator, was sentenced to six years and three months in prison. The real estate developer died prior to the trial. As part of restitution, the court ordered forfeiture of real estate involved in the crime worth more than $20 million.

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Ally Bank Logo
Goldman Sachs Press Release
Morgan Stanley Press Release
Ally Financial Press Release

The Fraud

Goldman Sachs, Morgan Stanley, and Ally Bank misled investors about the quality of residential mortgage-backed securities (RMBS) each company issued, marketed and sold.

SIGTARP's Role

In the three separate cases, SIGTARP was part of a task force that uncovered the fraud.

Investigation Fact

Misleading investors about the quality of RMBS was a key type of abuse that contributed to the financial crisis.

Enforcement

In separate enforcement actions with the Justice Department, each company acknowledged wrongdoing under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), made corporate changes, and paid significant monetary penalties totaling nearly $8 billion.

Ally also discontinued operations of its registered broker-dealer, Ally Securities. Goldman, which paid a $5.06 billion penalty that included homeowner relief, admitted that it made false and misleading representations to prospective investors about the characteristics of the loans it securitized and the ways in which it would protect investors in its RMBS from harm. Morgan Stanley, which paid a $2.06 billion penalty, admitted that it failed to disclose critical information to prospective investors about the quality of the mortgage loans underlying its RMBS, and about its due diligence practices. Ally, which paid a $52 million penalty, acknowledged that it failed to inform investors about deficiencies and material changes to its underwriting and diligence process.

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Statement
Press Release

The Crime

After aggressive and risky loan-fueled growth, management of TARP recipient United Commercial Bank (UCB) fraudulently inflated the bank's financial performance by hundreds of millions of dollars. The bank later failed - one of the largest failures since the Great Depression - and $300 million in TARP funds were lost.

SIGTARP's Role

Instead of relying on traditional notions of bank fraud, SIGTARP compared UCB's bank information to red flags we developed.

Investigation Fact

Electronics stored in a warehouse that served as collateral for a major loan turned out to be fake-staged like a Hollywood movie set. But UCB did not write the loan down. Then U.S. Attorney Melinda Haag said UCB was "one of the largest criminal prosecutions brought by the U.S. Department of Justice of wrongdoing by bank officers arising out of the 2008 financial crisis."

Prosecution

UCB's former chief credit officer was sentenced to eight years in prison. This case and others have brought accountability to senior executives at TARP banks who commit crimes.

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Statement
Press Release
Industry Award Press Release

The Crime

TARP recipient General Motors (GM) knew about an ignition switch defect that lead to driver deaths but did not recall the part. Instead, GM concealed the defect for years from consumers and regulators.

SIGTARP's Role

SIGTARP played a lead role in finding the criminal conduct through interviews of 70 witnesses and analysis of millions of pages of documents and emails.

Investigation Fact

GM could have corrected the ignition switch defect for less than one dollar per vehicle.

Prosecution

As part of GM's deferred prosecution agreement with the Justice Department, the auto manufacturer admitted to criminal conduct and made changes to prevent future fraud. GM also paid $900 million to the U.S. government, helping offset a TARP loss of $11 billion.

This case brought industry-wide changes. GM's federal regulator revised its recall practices. Auto manufacturers now respond more quickly respond to recall defective auto parts. Vehicle recalls have skyrocketed from 20 million in 2013 to more than 50 million in 2014 and 2015.

Martin Logo
Press Release

The Wrongdoing

The City of Fort Wayne, Indiana awarded all Blight Elimination Program demolition contracts to Martin. But instead of filling the post-demolition excavation sites with clean fill dirt as required, from February to September 2017 Martin filled the holes with construction debris and then falsely billed and received payments from the TARP program.

SIGTARP's Role

SIGTARP investigated Martin for fraud on the program. In 2017, SIGTARP released an audit warning about the risk of fraud related to contaminated soil.

Investigation Fact

This case marks the first law enforcement action brought as a result of SIGTARP's investigation into the Hardest Hit Fund Blight Elimination Program.

The Enforcement

With Martin closing its business, the United States Attorney Northern District of Ohio resolved False Claims Act charges pre-suit. In addition to Martin returning payments received and a penalty, there will be substantial costs to remediate the properties.

Bank of the Commonwealth Logo
Press Release

The Crime

Former chief executive officer and chairman Edward Woodard orchestrated a massive fraud that drove the bank into the ground. Greedy for aggressive growth, he made risky loans. When the loans resulted in losses, bank officers cooked the books to hide $800 million in past due loans, overdrew checking accounts by $100,000 to make loan payments, and made loans to straw borrowers knowing that the money would pay down delinquent borrowers' loans.

SIGTARP's Role

Bank of the Commonwealth applied for $28 million in TARP funds using false books and records. SIGTARP's investigation with our law enforcement partners uncovered the massive fraud. Former U.S. Attorney Neil MacBride, who prosecuted the case, said that the fraud "intensified the impact of the 2008 financial crisis."

Investigation Fact

The bank failure, the largest in Virginia history, was at the time the seventh largest bank failure in the country.

Prosecution

Woodard was sentenced to 23 years in prison, former executive vice president Stephen Fields - who previously worked at the Federal Reserve as a bank examiner - was sentenced to 17 years in prison, and former vice president Troy Brandon Woodard was sentenced to eight years in prison. Four co-conspirators were also sentenced to prison. This and similar SIGTARP cases like Colonial Bank and Tier One have brought accountability to senior executives who tried to get TARP funds to cover up fraud in banks' books.

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RBS Logo
Press Release
Press Release

The Crime

Jefferies and RBS fraudulently increased the profitability of residential mortgage backed securities (RMBS) trades by repeatedly misleading customers, including the TARP-funded Public-Private Investment Program, a $18.6 billion effort designed to unlock frozen credit markets during the crisis.

SIGTARP's Role

SIGTARP was the first to uncover this wrongdoing in the securities industry. The Special Inspector General sent letters to all broker dears involved in PPIP asking them to self-report.

Investigation Fact

At Jefferies, members of management in the fixed income division were aware of the misrepresentations but did nothing to stop it. At RBS, supervisors and compliance personnel took steps to prevent victims and honest RBS employees from discovering and exposing the scheme.

Prosecution

As part of their enforcement actions with the United States Attorney for the District of Connecticut, Jefferies and RBS paid $25 million and $35 million penalties, respectively, and changed their RMBS sales practices. These cases prompted widespread change: broker dealers throughout the securities industry revised their RMBS sales practices.

Tier One Logo
Press Release

The Crime

When former chief executive officer Gilbert Lundstrom's aggressive strategy to expand TierOne Bank's portfolio into risker areas like commercial real estate failed, he and other executives intentionally and repeatedly concealed more than $100 million in losses from investors and regulators. They also used unrealistic loan collateral values to make it appear that the bank met required capital ratios. The conspiracy included applying for an $86 million bailout from TARP using false bank books, which Lundstrom said the bank "would be dead without." These lies dug TierOne into an even deeper financial hole and, in June 2010, the bank failed. TierOne Bank was the second largest bank in Nebraska and had more than 750 employees and 69 branches.

SIGTARP's Role

The prosecution was the result of a multi-year investigation by SIGTARP and its law enforcement partners.

Investigation Fact

Chief credit officer James Laphen conspired with Lundstrom to create a separate set of books for regulators that hid astronomical write downs on loans. Banks officers called the books "smoke and mirrors" and "hiding the ball."

Prosecution

Lundstrom was sentenced to 11 years in prison and ordered to pay $500,921. Laphen was sentenced to two years and 10 months in prison and ordered to pay $225,000. Former chief credit officer Don Langford was sentenced to one year and nine months in prison.

SunTrust Logo
Statement
Press Release

The Crime

SunTrust committed fraud while administering the Home Affordable Modification Program (HAMP), causing serious financial harm to thousands of homeowners who applied through the bank. SunTrust made material misrepresentations to homeowners applying for lower interest rates. It failed to process applications in a timely fashion. And it made mass denials and then lied to Treasury about the reason why applicants were denied.

SIGTARP's Role

SIGTARP led the investigation that uncovered the criminal conduct and SunTrust's unwillingness to put resources in HAMP despite taking billions in TARP funds.

Investigation Fact

The floor of the room where SunTrust dumped unopened Fed-Ex packages of HAMP applications and other homeowner documents buckled under the packages' sheer weight.

Prosecution

As part of their enforcement action with the Justice Department, SunTrust made corporate changes and paid $320 million to victim homeowners, housing non-profits, and the government.

MrCooper
Nationstar

Press Release

The Wrongdoing

Nationstar Mortgage n/k/a Mr. Cooper was the subject of federal and state enforcement actions charging violations of consumer protection laws, including related to its administering of the Home Affordable Modification Program (HAMP), causing serious financial harm to more than 115,000 consumer and homeowner victims.

SIGTARP's Role

SIGTARP investigated Nationstar for violations of the law, given that it is the fifth largest participant in the HAMP program, receiving $1.7 billion from Treasury.

Investigation Fact

Nationstar threatened foreclosure to homeowners involved in loss mitigation, failed to properly apply payments, and wrongfully increased permanent modified mortgage payments. It also failed to disburse tax payments from escrow, and failed to properly process loan modification applications, including for homeowners whose mortgages were transferred.

Civil Actions

As part of the enforcement actions with 51 Attorneys General, 53 state financial services regulators, and the Consumer Financial Protection Bureau, Nationstar will make corporate changes and paid $92.8 million to victim homeowners and the governments

Colonial Bank Logo
Press Release
Press Release

The Crime

Former Taylor, Bean & Whitaker (TBW) Chairman Lee Bentley Farkas spearheaded an undetected decade long $2.9 billion fraud scheme that ultimately contributed to the failure of the mortgage lender and Colonial Bank. Facing mounting losses at TBW, Farkas and his co-conspirators hid them through a variety of crimes. They secretly overdraw the firm's accounts with Colonial Bank. They lied about securing $300 million in funds from private investors. And they submitted financial data and filings that had materially false and misleading information, among other crimes. During the fraud, Farkas lived in the lap of luxury using the more than $38 million that he stole from TBW and Colonial Bank - buying a jet, expensive antique and collector cars including a Rolls Royce, and multiple vacation homes.

SIGTARP's Role

This 10-year fraud was undetected until Colonial Bank applied for TARP and SIGTARP discovered the fraud.

Investigation Fact

The fraud contributed to the failure of Colonial Bank, one of the 25 largest banks in the nation with $25 billion in assets, the third largest bank failure since the crisis, and the sixth largest bank failure in U.S. history, as well as the failure of TBW which was one of the largest mortgage lenders in the nation. Then U.S. Attorney Neil McaBride said the scheme "affected those at the heart of the financial crisis, including major financial institutions, government agencies, taxpayers, and employees and investors."

Prosecution

SIGTARP saved $553 million in TARP funds that Treasury had already approved to invest in the bank. Eight defendants were sentenced to prison, including Farkas and former Colonial Bank senior vice president Catherine Kissick; they received 30 and eight year sentences, respectively.