Second Person Indicted in Scam to Bilk Mortgage Brokers out of Millions

April 26, 2010 - Troy David Chaika, age 43, has been indicted by a federal grand jury in Minneapolis for conspiring with others to bilk mortgage lenders out of more than $43 million by making materially false representations and concealing material information. The indictment, originally filed in U.S. District Court on April 12, was unsealed today following Chaika’s initial appearance in federal court. Specific charges include seven counts of wire fraud, three counts of mail fraud, one count of conspiracy to commit wire fraud and mail fraud

The indictment alleges that between 2005 and 2008, Chaika conspired with others, including Dustin Lee LaFavre, who is being prosecuted in a separate action, to obtain money fraudulently through approximately 183 residential property transactions. To further this scheme, Chaika and LaFavre purportedly negotiated with builders of new properties as well as owners of existing properties to buy at greatly reduced prices both single pieces of property and property groupings, known as “bulk purchases.” Chaika and LaFavre then reportedly solicited real estate purchasers by promising them they would pay nothing for the properties they bought. Instead, according to the indictment, Chaika and LaFavre assured them they would receive large cash pay-outs that could be used to improve the properties and lead to profits when the properties were resold.

The indictment states, however, Chaika and LaFavre failed to tell potential buyers about the reduced prices they had negotiated for the properties, choosing, instead, to quote them grossly inflated prices. By charging buyers higher prices, Chaika and LaFavre could acquire enough cash from the loan proceeds to pay buyers their kickbacks and still have money left for themselves and their co-conspirators.

Once a potential buyer was recruited through this scheme, Chaika and LaFavre, or someone working on their behalf, allegedly drafted a purchase agreement that reflected only the inflated sale price and failed to disclose the kickback planned for distribution to the buyer. Occasionally, Chaika, LaFavre, or someone working for them, drafted a so-called addendum to the purchase agreement, setting forth the planned kickback, or pay-out, to a buyer, but that document was never provided to the lender.

In several instances, Chaika and LaFavre, or others on their behalf, reportedly worked with buyers and mortgage loan officers to prepare false documents for use in the application process. In addition, Chaika and LaFavre sometimes, allegedly, loaned buyers money for down payments or to pad their bank balances while the application process was pending. Because of those material misrepresentations, numerous lenders agreed to fund mortgage loans for the purchase of the residential properties. Furthermore, after the mortgage loans were secured, property title companies prepared documents and handled closings based on the fraudulent information provided by Chaika and LaFavre or by others on their behalf. Again, those misrepresentations were material.

In furtherance of this scheme, Chaika allegedly prompted no fewer than seven wire transfers of loan proceeds from which he and others obtained cash kickbacks. He also caused false documents to be sent through the U.S. mail and by commercial carriers on at least three occasions.

If convicted, the Chaika faces a potential maximum penalty of 20 years in federal prison on count charged. All sentences will be determined by a federal district court judge. Dustin Lee LaFavre has plead guilty to similar charges and awaits sentencing.

This case is the result of an investigation by the Federal Bureau of Investigation and the U.S. Postal Inspection Service. It is being prosecuted by Assistant United States Attorney Tracy L. Perzel. Note, this law enforcement action is in part sponsored by the interagency Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. It includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and State and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

An indictment is a determination by a grand jury that there is probable cause to believe that offenses have been committed by a defendant. A defendant, of course, is presumed innocent until he or she pleads guilty or is proven guilty at trial.