Three Indicted for $3.1 Million Mortgage Fraud Scam

April 26, 2010 - Two Prior Lake men and a man from California were charged in a federal indictment unsealed today in the District of Minnesota. The indictment, originally filed with the U.S. District Court in Minneapolis on April 21, 2010, alleges that Beau Wesley Gensmer, age 28, and Christopher Glenn Kennedy, age 30, both of Prior Lake, along with Cameron Roland Baird, age 29, of Los Altos, California, orchestrated a scheme to defraud mortgage lenders out of $3.1 million by causing mortgage loans to be funded based on false information. Specifically, each defendant was charged with 15 counts of wire fraud, one count of wire fraud conspiracy, and two counts of engaging in a monetary transaction derived from unlawful activity.

According to the indictment, the defendants, aided and abetted by others, operated this fraud scheme between July 2007 and September 2008. During that time, Gensmer and Kennedy allegedly solicited investors to purchase condominium units in Prior Lake for prices higher than previously listed. To secure those investors, Gensmer and Kennedy reportedly told them they would not have to pay for the units and promised them money for down payments, closing costs, and monthly mortgage payments. Moreover, they purportedly informed potential investors that the units would be rented out for a while but ultimately sold for profit, to be shared with them.

Once an individual investor agreed to purchase one or more of the condo units, Kennedy retained an accountant to prepare tax returns for that investor and, allegedly, provided that accountant with false information to generate tax returns that reflected inflated income figures. Those fraudulent returns were material to lenders. In conjunction with mortgage loan documents, those returns were used to secure approval for the loans necessary to purchase the condo units.

In addition, the indictment alleges that Gensmer and Kennedy temporarily deposited money into the bank accounts of some of the investors to make it appear to potential lenders that those investors had more cash on hand than they actually did. Gensmer and Kennedy also purportedly caused false information and documentation to be provided to potential lenders during the mortgage loan application process. Those misrepresentations were material to the lenders, as they, too, led to the funding of mortgages. Finally, after each mortgage was secured, Gensmer and Kennedy allegedly prepared or caused to be prepared false closing documents as well as false property title documents, which were processed through a title company owned at least in part by individuals with an ownership interest in the entity that originally constructed the condo building.

The condo building itself was erected in April of 2007 by an entity owned in part by a relative of Gensmer. When the building’s units failed to sell, they were removed from the market, and this scheme was reportedly hatched. Baird was one of the original investors in the scheme, and, eventually, he purchased nine units. Then he, along with Gensmer and Kennedy, secured two more investors, who also purchased multiple units. Baird is accused of subsequently working with Kennedy to provide tax preparers with false financial information regarding investors.

Following the sale of the condo units through this scheme, some of the sale proceeds were used by the entity that constructed the building to pay down its construction loan. Other proceeds were used by Gensmer and Kennedy to pay costs related to the investors’ condo purchases. However, contrary to their promises, Gensmer and Kennedy failed to provide money to investors for monthly mortgage payments. As a result, investors defaulted on the mortgage loans.

Specific to the charges set forth in the indictment, all three defendants participated in the conspiracy. All three caused or aided and abetted the wire transferring of funds on at least 15 separate occasions for the purpose of executing this scheme. And, on two occasions, all three caused or aided and abetted the payment of money, totaling more than $74,000, knowing the funds were derived from the fraud activity.

If convicted, the defendants face a potential maximum penalty of 20 years in federal prison on each wire fraud count, 20 years on the conspiracy count, and 10 years on each money laundering count. All sentences will be determined by a federal district court judge.

This case is the result of an investigation by the Federal Bureau of Investigation, the Internal Revenue Service–Criminal Investigation Division, and the Prior Lake Police Department. 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.