This is a departure from my normal fare, but I found it interesting. A close friend and colleague was buying foreclosed properties at auction a few years ago and found it difficult to compete with a clique of buyers at the auction who seemed to be (gasp) colluding with each other. It turns out he was right, and it also turns out that it was a very good thing that he didn’t break into the clique, as they may all soon be wearing matching outfits provided by the California Department of Corrections.
From Herman Thordsen, a prominent California real estate attorney:
IN ADDITION TO THE 47 IN NORTHERN CALIFORNIA ALREADY INDICTED FOR RIGGING BIDS AT FORECLOSURE SALES HERE ARE TWO MORE
On November 24, 2014 two more Northern California Real Estate Investors Agree to Plead Guilty to Bid Rigging and Fraud at Public Foreclosure Auctions. They have agreed to plead guilty for their role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California. Felony charges were filed in the U.S. District Court for the Northern District of California in Oakland against Su Chu Chou “Terry” Cheng and Chung Li “George” Cheng of Walnut Creek, California.
49 INDIVIDUALS HAVE AGREED TO PLEAD OR HAVE PLEADED GUILTY.
Between May 2008 and January 2011 GEORGE AND TERRY CHENG conspired with others not to bid against one another, and instead designated a winning bidder to obtain selected properties at public real estate foreclosure auctions in Alameda and Contra Costa counties. George and Terry Cheng were also charged with conspiring to use the mail to carry out a scheme to fraudulently acquire title to selected Alameda and Contra Costa County properties sold at public auctions, to make and receive payoffs, and to divert money to co-conspirators that would have otherwise gone to mortgage holders and other beneficiaries by holding second, private auctions open only to members of the conspiracy. The department said that the selected properties were then awarded to the conspirators who submitted the highest bids in the second, private auctions. The private auctions often took place at or near the courthouse steps where the public auctions were held. How stupid can they get? Commit a crime and then walk a few feet and finish the crime in front of numerous witnesses!
The department said that the primary purpose of the conspiracies was to suppress and eliminate competition and to conceal payoffs in order to obtain selected real estate offered at Alameda and Contra Costa County public foreclosure auctions at non-competitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner. These conspirators paid and received money, according to the court documents, that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties, and, in some cases, the defaulting homeowner.
A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. 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 victims if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.
Today’s charges are the latest filed by the department in its ONGOING INVESTIGATION INTO BID RIGGING AND FRAUD AT PUBLIC REAL ESTATE FORECLOSURE AUCTIONS IN SAN FRANCISCO, SAN MATEO, CONTRA COSTA, AND ALAMEDA COUNTIES, CALIFORNIA. These investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-934-5300, or call the FBI tip line at 415-553-7400. (usattyndca112414)
You may reach Herman through his website at http://thordsenlawoffices.com.
You might ask why I’m passing something like this on to you. I’m so glad you asked!
If you know me, you know that I have been terribly frustrated at the bad behavior within my industry (if I think of my industry as “real estate” in general, and those who buy foreclosed properties are included in that group). Lately law enforcement has finally been getting serious about prosecuting some of those bad players; not enough, perhaps, but at least some.
In an ideal world, my colleagues would behave well because it’s the right thing to do. In the real world some of them will, and the rest will do so only if the threat of prison time is tangible. If the only way to restore dignity to the profession is imprisoning the fraudsters, this is a step in the right direction, and it brings me great satisfaction to see it.